[New York Stock Market] 'Retail Giant' Target Warning Leads to Decline... Nasdaq Down 1.54%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The U.S. New York stock market closed lower on the 16th (local time) despite strong retail sales data, as retail giant Target presented a gloomy fourth-quarter earnings outlook ahead of the year-end shopping season.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,553.83, down 39.09 points (0.12%) from the previous session. The S&P 500, centered on large-cap stocks, closed at 3,958.79, down 32.94 points (0.83%), and the tech-heavy Nasdaq closed at 11,183.66, down 174.75 points (1.54%).

By stock, major retailer Target plunged 13.14% after announcing that its third-quarter net profit fell 50% compared to the same period last year. Following Target's fourth-quarter earnings warning, representative retail stocks such as Kohl's (-7.08%), Macy's (-8.07%), and Nordstrom (-8.03%) also fell sharply.

Energy stocks also showed weakness as international oil prices slid to a three-week low. Occidental Petroleum fell 3.36%, Chevron 1.56%, and ExxonMobil 1.10%. Chinese-related stocks, which had rallied the previous day, also weakened. Tencent Music dropped 9.29%, and XPeng fell 10.98%. Semiconductor stocks including Nvidia (-4.54%), Qualcomm (-4.20%), and AMD (-4.81%) also declined across the board. Additionally, cruise company Carnival fell 13.71% after announcing plans to issue $1 billion in convertible bonds. Restaurant Brands International, the parent company of Burger King, rose 6.71% after announcing the hiring of a CEO from Domino's Pizza.

Investors focused on economic indicators including retail sales, corporate earnings such as Target's, geopolitical tensions surrounding the missile strike in Poland, and remarks from Federal Reserve (Fed) officials.

Despite the Fed's aggressive tightening, October retail sales showed the largest increase in eight months. According to the U.S. Department of Commerce, October retail sales rose 1.3% year-over-year, exceeding the expert forecast of 1.0% and marking the highest growth rate since February this year (1.7%). This strong retail sales data confirmed robust consumer demand despite U.S. inflation nearing a 40-year high and growing concerns about economic slowdown and recession.

However, considering that retailers have entered discount mode early ahead of the year-end shopping season, some analysts suggest that strong October retail sales may come at the expense of reduced spending later in the year. Veronica Clark, an economist at Citigroup, said, "Consumers may be shopping earlier," adding, "This shifts spending from November and December to October."

Retail giant Target also indicated that fourth-quarter sales could decline by a low single-digit percentage compared to the previous year, presenting a gloomy outlook for the year-end shopping season. Brian Cornell, Target's CEO, expressed concern that "customers' shopping is increasingly affected by inflation, interest rates, and economic uncertainty." Target's warning immediately chilled investor sentiment.

Brian Levitt, global market strategist at Invesco, said, "Retail sales data suggest consumers are willing to spend on big-ticket items, but Target indicates holiday weakness," adding, "The latter aligns more with expectations. Strict tightening reduces consumption and eases inflation." Additionally, September corporate inventories released that day showed a 0.4% month-over-month increase, below Wall Street expectations. Year-over-year, inventories rose 17.8%.

Fed officials also made remarks. Fed Governor Christopher Waller said at an event that if economic data cooperate, the Fed could soon slow the pace of rate hikes. He stated, "Recent weeks' data ahead of the December meeting make a 0.5 percentage point hike more comfortable," but added, "I will not make a judgment until seeing more data such as the next PCE and employment reports." The PCE, an inflation indicator closely watched by the Fed, will be released on December 1. On the same day, Mary Daly, President of the Federal Reserve Bank of San Francisco, told CNBC that "a pause in rate hikes is not on the table," and she expects rates to rise by at least 1 percentage point, possibly more.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) rate futures market currently reflects an over 85% chance of a 0.5 percentage point rate hike in December, similar to the previous day. Goldman Sachs raised its federal funds target rate forecast from 4.75-5.0% to 5.0-5.25%, expecting the Fed to raise rates by 0.5 percentage points at the December meeting and by 0.25 percentage points each in February and March next year.

In the New York bond market that day, the yield on the U.S. 10-year Treasury slipped below 3.7%. The 2-year yield, sensitive to monetary policy, stood at 4.36%. The inversion between short- and long-term Treasury yields continues, with the 3-month yield (4.23%) also exceeding the long-term 10-year yield. Such yield curve inversion is generally considered a precursor to recession.

The missile that fell in Poland was tentatively concluded to be an accidental incident caused by Ukraine. This somewhat eased geopolitical risks. However, Ukrainian President Volodymyr Zelensky denied NATO's tentative conclusion, asserting, "I am confident that missile is not ours." NATO currently holds that since the incident occurred during efforts to block a large-scale Russian airstrike, ultimate responsibility lies with Russia.

Geopolitical tensions eased that day, leading to a drop in oil prices. On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil prices closed at $85.59 per barrel, down $1.33 (1.53%) from the previous session. This is the lowest closing price since November 25.