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Dow dives more than 1,100 points on renewed inflation fears

Stocks plunge as economic fears intensify
Stocks plunge as economic fears intensify 02:09

Stocks plummeted on Wall Street Wednesday, as poor results from retailers led to renewed fears that inflation could chill consumer spending and corporate profits.

The Dow Jones Industrial Average tumbled 1,164 points, or 3.6%, to close at 31,490. The S&P 500 lost 4% on its worst day since 2020, while the tech-heavy Nasdaq Composite  fell 4.7%.

"The growth scare that hovers over the market intermittently has intensified as market participants are factoring in a deeper slowdown," Quincy Krosby, chief equity strategist for LPL Financial, said in a note.

The selloff was led by steep drops in retailers as Target plunged after issuing a grim quarterly earnings report. Target lost a quarter of its value after reporting earnings that fell far short of analysts' forecasts, while citing higher costs. The report comes a day after Walmart said its profit took a hit from higher costs. Walmart, the nation's largest retailer fell 6.6%, adding to its losses from Tuesday.

The weak reports stoked concerns that red-hot inflation is squeezing a wide range of businesses and could cut deeper into their profits. They also coincide with an increasingly hawkish posture from the Federal Reserve, with chairman Jerome Powell saying on Tuesday that the bank could consider "moving more aggressively" to raise rates if inflation doesn't fall quickly.

"Chairman Powell's hawkish comments yesterday afternoon and Target's shrinking profit margins this morning were too much for the market to handle," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a note.

Rising gas and food prices fuel frustration over inflation 02:30

"We've been expecting volatility all year long and unfortunately we've gotten it, but the market needs to price in a more-hawkish-than-many-expected Fed, inflation that is more persistent than previously believed, and an economy that is slowing down due to rising rates and decreasing consumer demand," he said. 

Retailers had some of the biggest losses. Dollar Tree fell 14.4% and Dollar General slumped 11.1%. Best Buy fell 10.5% and Amazon fell 7.2%. Makers of household goods and grocery stores also fell sharply, with Kroger slipping 6.5% and Procter & Gamble losing 6.2%.

The disappointing report from Target comes a day after the market cheered an encouraging report from the Commerce Department that showed retail sales rose in April, driven by higher sales of cars, electronics and more spending at restaurants.

Yellen: "Challenging and uncertain" outlook

Utilities held up better than the rest of the market as investors shifted money to investments that are considered less risky.

By many metrics, the economy remains healthy. Consumer spending, which drives the bulk of economic activity, remains strong, unemployment is low and workers are empowered to switch jobs. But many economists are worried that high prices of energy and food will be a drag on growth. 

Treasury Secretary Janet Yellen on Wednesday called the global economic outlook "challenging and uncertain."

"Higher food and energy prices are having stagflationary effects, namely depressing output and spending, and raising inflation all around the world," she said at a press conference.

Stocks have been struggling to pull out of a slump over the last six weeks as concerns pile up for investors. Trading has been choppy on a daily basis and any data on retailers and consumers is being closely monitored by investors, as they try to determine the impact from inflation and whether it will prompt a slowdown in spending. A bigger-than-expected hit to spending could signal more sluggish economic growth ahead.

MoneyWatch: Is the U.S. heading for another recession? 05:22

The Federal Reserve is trying to temper the impact from the highest inflation in four decades by raising interest rates. But investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly. Worries persist about global growth as Russia's invasion of Ukraine puts even more pressure on prices for oil and food while COVID-19 lockdowns in China worsen supply-chain problems.

The United Nations is significantly lowering its forecast for global economic growth this year from 4% to 3.1%. The downgrade is broad-based, which includes the world's largest economies such as the U.S., China and the European Union.

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