[New York Stock Market] Target Shock and Inflation Fears... Dow Hits Worst in 2 Years, Nasdaq Down 4.73%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange plunged sharply on the 18th (local time) due to weak performance from retail companies including Target and fears of inflation. The Dow Jones Industrial Average, composed of blue-chip stocks, fell more than 1,100 points, marking its worst day since 2020.

On this day at the New York Stock Exchange (NYSE), the Dow closed at 31,490.07, down 1,164.52 points (3.57%) from the previous session. The large-cap S&P 500 index ended at 3,923.68, down 165.17 points (4.04%), and the tech-heavy Nasdaq index closed at 11,418.15, down 566.37 points (4.73%). The small-cap Russell 2000 index also recorded a decline of 65.45 points (3.56%) to 1,774.85.

The Dow's drop was the largest since June 2020. The closing price was also the lowest since March 2021. The S&P 500's decline was the biggest since June 2020. Economic media CNBC reported that only eight stocks in the S&P 500 showed gains (green) on this day, indicating widespread and intense selling pressure.

Investors closely watched retail companies' earnings, inflation concerns, and movements in government bond yields. After Walmart, Target also announced net profits far below market expectations, heightening investor caution. Soaring inflation and supply chain disruptions increased cost burdens for retail companies, and with bleak future earnings forecasts, massive sell-offs were confirmed in the market.

Target closed down 24.93% from the previous session, marking its worst day since Black Monday in 1987. Following the Target shock, Macy's (-10.66%), Best Buy (-10.51%), and Kohl's (-11.02%) also fell double digits. Walmart slid 6.79% after a double-digit drop the previous day. Dollar Tree closed down 14.42%. Amazon also dropped more than 7%.

Megan Horneman, Chief Investment Officer at Burdens Capital Advisors, mentioned rising food and energy prices, saying, "Retail stores will be hit." Nick Zakumakis, founder of NEIRG Wealth Management, said, "Inflation is hitting all aspects of performance, whether in transportation or supply chains. Customers generally are not buying more expensive goods, and this is all reflected in earnings."

Jack Abelin of Creset Capital predicted, "Companies relying on households and discretionary purchases will face difficulties this quarter." However, TJX, the parent company of TJ Maxx, saw its stock rise more than 7% supported by earnings despite the downturn in retail stocks.

Alongside this, major tech stocks such as Tesla (-6.80%), Apple (-5.64%), Netflix (-7.02%), and Nvidia (-6.80%) also showed widespread declines.

Due to inflation concerns and the Federal Reserve's tightening signals, the U.S. 10-year Treasury yield briefly surpassed 3% in the morning but has since fallen to around 2.87%. Fed Chair Jerome Powell emphasized at an event the previous day that interest rates will continue to rise until inflation is firmly controlled.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," surged more than 18% from the previous session, nearing 31.

Economic indicators released on this day showed a slowdown. The U.S. Department of Commerce reported that new housing starts in April decreased 0.2% month-over-month to an annualized 1.724 million units. Building permits for new homes fell 3.2% to 1.819 million units. Analysts suggest that supply chain disruptions and rising interest rates are contributing to the slowdown in related indicators.

Concerns about a recession continue to be raised. Famous investor Jeremy Grantham, appearing on CNBC, said the current downturn is worse than the dot-com bubble in 2000. Grantham noted, "Previously, the S&P 500 fell 19.9%, and the Nasdaq dropped 27%. At least, it looks like it will go down twice as much." He also warned, "We will experience a severe recession."

In the risk asset sell-off, crude oil prices also weakened. At the New York Mercantile Exchange, June West Texas Intermediate (WTI) crude oil closed at $109.59 per barrel, down $2.81 (2.5%) from the previous session.