What’s happening: The country’s top chain has revealed that inflation has led consumers to scale back spending on certain items as they seek to cut back, a shift that will have major implications for the next phase of the U.S. recovery from the pandemic.
That left some of its products overstocked, especially kitchen appliances, TVs and outdoor furniture. Its shares plunged 25 percent on Wednesday, their worst day since 1987.
Target CEO Brian Cornell said on a conference call with analysts that shoppers are concerned about “the high and persistent inflation they’ve been experiencing, especially around food and energy,” though he stressed that consumers remain “Resilient” and continue to benefit from pent-up – saving and excitement when seeing friends and family again.
He added that store traffic remained strong, up nearly 4% year-on-year, with May off to a good start.
But analysts who pored over the results say they represent a dramatic change from the boom years following the Covid-19 lockdown.
While Americans stay home, inundated with stimulus checks and the money they’re stashing away, they spend it recklessly. Now, with bills rising, anxiety is forcing many households to be more cautious – and stores have been caught off guard.
“Few companies are so closely intertwined with so many aspects of the U.S. economy, [Walmart] and [Target], their logistics and supply chain operations can match or exceed most other companies,” Bespoke Investment Group said in a note to clients. “If they have these types of problems keeping up with a rapidly changing environment , who wouldn’t? “
R5 Capital’s Scott Mushkin said after Target’s earnings report that he now sees the retailer’s environment as uninvestable, at least in the short term.
“Inflation and costs are out of control, consumer spending is volatile, and there are growing concerns about how long consumer spending will last, at least in our view,” he wrote in a research note.
Target’s stock price drop on Wednesday appeared to suggest investors were bracing for “the idea that these shoes could go down.”
“It got us thinking whether the unprecedented boom of the past two years will be followed by an unprecedented bust, the scope of which we can’t even imagine,” Mushkin said.
Controversial hedge fund Melvin Capital closes
When a group of day traders coordinated on Reddit set their sights on GameStop’s stock early last year, many hoped to punish one man: Gabe Plotkin of Melvin Capital.
Hedge funds are betting GameStop’s stock price will fall. It took a big hit when the stock surged about 1,700% in a month.
In a letter to investors seen by Reuters, he said the past 17 months have been “incredibly difficult.”
With $12.5 billion in assets at the start of 2021, Melvin Capital is seen as one of Wall Street’s most successful hedge funds. Then its fortunes changed.
The company had assets of $7.8 billion at the end of April. A person familiar with the fund’s financials told Reuters it fell 23 percent in the first four months of 2022.
Plotkin said on Wednesday that he had begun the process of exiting the post and would stop charging management fees in early June. He added that he had done “as much as he could”, but it was still not enough to deliver the returns expected by clients.
The big picture: Melvin Capital’s collapse is a shocking fall from grace. It shows not only the lasting impact of the meme stock mania that shocked many traditional investors last year, but also the far-reaching effects of this year’s volatility, as worries about inflation, interest rates, China’s response to the pandemic and the war in Ukraine have left investors Nowhere to hide.
Musk furious as Tesla drops from S&P’s ESG index
“ESG is a scam,” he tweeted. “It has been weaponized by false social justice warriors.”
Taking a step back: S&P Dow Jones Indices said in a blog post that Tesla’s ESG status was affected by racism and poor working conditions at its Fremont manufacturing plant.
The automaker’s handling of a National Highway Traffic Safety Administration investigation into a fatal crash involving its self-driving technology has also been called into question.
Margaret Dorn, executive in charge of ESG indices in North America, in a blog post.
Index makers have caught up with the ESG investing craze, creating a slew of new products they can market to clients who want to better align their portfolios with their values. But many have been making the rules. Oversight by regulators remains minimal.
Today is also:
- The number of Americans filing for unemployment benefits last week arrived at 8:30 a.m. ET.
- US existing home sales for April are released at 10 am ET.