Inflation-Driven Real Economy Shock Intensifies... Panic Selling in US Target Earnings

[Asia Economy New York=Special Correspondent Joselgina] The inflation-driven real economy shock has begun. Amid ongoing debates about a recession centered on Wall Street, the quarterly earnings of Target, following the major US retailer Walmart, have confirmed consecutive cost shocks due to high inflation. The market immediately fell into panic selling.

On the 18th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 1,164.52 points (3.57%) from the previous close, marking the largest drop since June 2020. The closing price (31,490.07) was also the lowest since March 2021. The S&P 500 index, focused on large-cap stocks, and the Nasdaq index, focused on tech stocks, also plunged 4.04% and 4.73%, respectively.

The trigger for the decline that day was the "retail giant" Target. Like Walmart, which plummeted the previous day, Target revealed net profits halved due to soaring oil prices and labor cost burdens, causing its stock to plunge 24.9% in just one day.

With inflation at its highest level in over 40 years confirmed to be having a tangible impact on corporate earnings, fears of economic slowdown have intensified. There are concerns that the inflation-driven earnings shock could lead to a vicious cycle of product price increases → rising inflation → reduced consumer spending → Federal Reserve (Fed) tightening → recession risk.

Michael Metcalfe, Head of Macro Strategy at State Street Global Markets, said, "The deterioration in economic growth has started with corporate earnings." Salman Ahmed, Head of Global Macroeconomics at Fidelity International, predicted, "Growth will begin to slow in the coming months."

Signs of economic slowdown have already been confirmed in various countries. In China, consumption, production, and investment indicators have all sharply declined this year due to the impact of COVID-19 lockdowns. Japan recorded negative growth in the first quarter due to weak personal consumption. The Korea Institute for International Economic Policy, a government research institute, has revised down the global economic growth rate for this year to 3.5%, 1.1 percentage points lower than before.

High inflation is also expected to negatively affect South Korea's growth this year. The day before, the Korea Development Institute (KDI), a government research institute, forecasted that the consumer price inflation rate would reach 4.2% this year due to the Ukraine war and supply chain shocks.