Growing recession warning
Walmart’s net profit plunged 24.8%
Target’s share price fell as earnings halved
S&P, Dow, and Nasdaq all plummet.
Wallet is closed, but labor costs increase, worsening
Yellen and CEOs one following another ‘stag’ prospects
Inflation fears are re-spreading in the stock market as US retail dinosaurs report less-than-expected earnings. Although sales increased due to a rise in the price of daily necessities, profits halved because non-essential items such as home appliances and furniture were not sold. Economists interpret the sluggish retail sector as a sign of a recession.
On the 18th (local time), the New York Stock Exchange had its worst day in two years. The Standard & Poor’s 500 Index plunged 4.0% from the previous day, recording the biggest drop since June 2020, the early days of the COVID-19 pandemic. The tech-focused Nasdaq and Dow Jones index also fell 4.73% and 3.57%, respectively.
The sluggish performance of large retailers such as Target and Wal-Mart was the trigger for the stock price plunge. Discount Mart Target announced on the same day that it recorded sales of 25.17 billion dollars (regarding 32.17 trillion won) and net profit of 1.09 billion dollars (regarding 1.3 trillion won) in the first quarter. Sales increased by 4% compared to the same period last year, but profits decreased by a whopping 51.9%.
After Wal-Mart, the largest retailer in the United States, announced a 24.8% decline in its first-quarter net profit the day before, panic-stricken investors quickly threw their stocks away. Target stock fell 24.93% on the same day, the biggest drop in 35 years.
Walmart shares, which plunged 11.38% the day before, fell 6.79% on the same day. Costco (-12.45%), Dollar Tree (-14.42%). Distribution stocks such as Best Buy (-10.51%) and Amazon (-7.16%) also fell all at once.
Target and Walmart attributed the slump to inflation. As food and gasoline prices soared due to supply chain disruption and the effects of the war in Ukraine, consumers reduced their purchases of household appliances, furniture, and clothing, such as TVs, that were not urgently needed. The company explained that these high-margin items were accumulated in inventory and profitability deteriorated as labor costs increased.
Experts said that “inflation concerns are a sign that concerns regarding an economic slowdown are shifting.”
“Consumer purchasing power is weakening at a faster rate than a month or two ago,” said Paul Christopher, head of global market strategy at the Wells Fargo Investment Research Institute.
U.S. Treasury Secretary Janet Yellen said on the same day that rising food and energy prices had a stagflation effect.
According to the Conference Board, an economic research firm, 57 percent of U.S. corporate CEOs expect the U.S. to experience a very short and mild recession. Twenty percent of respondents expect stagflation, where inflation will remain high for several years and growth slows.
Reporter Odalan