NEW YORK — The Dow Jones Industrial Average fell more than 1,100 points on Wednesday, with the S&P 500 posting its biggest drop in nearly two years, as Target and other major retailers slumped, sparking investor fears that soaring inflation could hit corporate profits hard. .
The broad sell-off wiped out gains from a strong rally a day earlier, the most recent day-to-day swing for stocks amid an intensified market rout in recent weeks.
The S&P 500 fell 4%, its biggest drop since June 2020. The benchmark index is now down more than 18% from its record high set at the start of the year. That’s less than a 20% drop in what is considered a bear market.
The Dow fell 3.6% and the Nasdaq fell 4.7%. All three indexes were on track to extend losses for at least six weeks.
“A lot of people are trying to guess the bottom,” said Sam Stovall, chief investment strategist at CFRA. “When there’s no one to sell, there’s a bottom.”
The S&P 500 lost 165.17 points to 3,923.68, while the Dow lost 1,164.52 points to 31,490.07. The Nasdaq lost 566.37 points to 11,418.15.
Shares of smaller companies also fell sharply. The Russell 2000 fell 65.45 points, or 3.6%, to 1,774.85.
The retailer was among the biggest losers on Wednesday after Target tumbled following a grim quarterly earnings report.
Target lost a quarter of its value after it reported earnings that fell well short of analysts’ expectations. Target said its operating margin in the first quarter was 5.3%, a sign of the impact of inflation, especially on transportation costs. It was previously expected to be 8% or higher. The company also said consumers are returning to more normal spending habits, moving away from TVs and appliances and buying more toys and travel-related items.
The report came a day after Walmart said its profits had been hit by higher costs. The largest U.S. retailer fell 6.8%, adding to Tuesday’s losses.
The weak report stoked fears that rising inflation is putting a tighter squeeze on a broad range of companies and could cut their profits further.
“These retailers have to balance how much higher inflation is passed on to consumers and eating it, so there’s a question of profitability for the company, and some lingering valuation questions in the market,” said All Star Charts investment strategist Willie Delwiche.
Other big retailers also suffered huge losses. Dollar Tree fell 14.4% and Dollar General fell 11.1%. Best Buy fell 10.5% and Amazon fell 7.2%.
Technology stocks, which led the market the previous day, were the biggest drag on the S&P 500. Apple fell 5.6%, its biggest drop since September 2020.
All told, more than 95% of stocks in the S&P 500 ended lower. Utilities fell, but not as much as 10 other sectors, as investors shifted their money to less risky investments.
Bond yields fell as investors shifted their money to less risky investments. The yield on the 10-year U.S. Treasury note fell to 2.88% from 2.97% late Tuesday.
Target’s disappointing report came a day after markets cheered an encouraging report from the U.S. Commerce Department showing retail sales rose in April on higher autos, electronics sales and spending at restaurants increase.
Over the past six weeks, stocks have struggled to emerge from a slump as investor concerns mount. Day-to-day trading is choppy, and investors are closely watching any data from retailers and consumers as they try to determine the impact of inflation and whether it will lead to a slowdown in spending. A larger-than-expected hit to spending could portend slower economic growth ahead.
Quincy Krosby, chief equity strategist at LPL Financial, said: “To be sure, consumers continue to spend, but many top retailers cannot pass on higher labor costs and higher prices caused by still-constrained supply chains.”
Target has warned that its freight costs this year will be $1 billion higher than it estimated three months ago. Target and Walmart each provided evidence that inflation is weighing on consumers, saying they are reluctant to buy big-ticket items and to switch from national brands to cheaper store brands.
The Federal Reserve is trying to soften the impact of the highest inflation in four decades by raising interest rates. Federal Reserve Chairman Jerome Powell told a Wall Street Journal meeting on Tuesday that the central bank “will have to consider acting more aggressively” if inflation fails to ease after an earlier rate hike.
Investors worry that if the central bank raises interest rates too high or too quickly, it could lead to a recession. Concerns about global growth remain as Russia’s invasion of Ukraine puts more pressure on oil and food prices and China’s lockdown to stem COVID-19 cases exacerbates supply chain problems.
The United Nations slashed its forecast for global economic growth this year to 3.1 percent from 4 percent. The downgrades are wide-ranging and include the world’s largest economies such as the United States, China and the European Union.
Vega reported from Los Angeles.