Fri. Dec 2nd, 2022

U.S. stocks fell sharply, with the Dow industrials suffering their worst day since 2020, as the latest set of disappointing earnings from large retailers raised investors’ fears of a recession.

The Dow Jones Industrial Average as of 4 p.m. ET was down about 1,164 points, or 3.6%, to 31490, its worst percentage decline since June 11, 2020 and its lowest closing level since March 2021.

The S&P 500 dropped 4%, and the tech-focused Nasdaq Composite slid 4.7%. The moves mark a U-turn from Tuesday, when technology shares led a rebound in markets.

Major retailers said their profits were hurt by rising costs, sluggish sales and supply-chain disruptions. Shares of Target sank 25% after the company posted quarterly earnings that missed analysts’ expectations, putting it on track for its worst one-day performance since Black Monday in 1987. Shares of Dollar Tree, Dollar General and Costco Wholesale were also on track for their largest declines in years. 

The results are prompting Wall Street to wrestle anew with the idea that the global economy could be headed for a recession. Though the debate is far from settled, it has rattled stocks and other risky assets throughout the year, with the latest data illustrating the degree to which inflation has hit U.S. consumers.

“Inflation is hitting every aspect of an earnings report, whether it be the transportation side or supply-chain disruption,” said

Nick Giacoumakis,

president and founder of NEIRG Wealth Management. “Customers are no longer buying the more expensive items they would typically buy. All this trickles through to an earnings report.”

Brent crude, the international benchmark for oil, fell 2.5% to $109.11, another indicator of investors’ worries about economic growth. Oil prices have been highly reactive in recent months to both Russia’s war against Ukraine, which could disrupt supplies, and lockdowns in major Chinese cities that sap demand. Shanghai’s government has begun preparing the city for reopening.

At the forefront of investors’ minds is decades-high inflation in the U.S., how much policy makers are willing to do to subdue it and what changes in monetary policy mean for economic growth. Federal Reserve Chairman

Jerome Powell

said Tuesday that the central bank’s resolve in combating inflation shouldn’t be questioned, even if the steps required push up unemployment.

Walmart shares fell 6.8%, extending Tuesday’s 11% drop after the retailer reported that it is getting squeezed by higher food prices and other rising costs. Lowe’s shares fell 5.2% after the home-improvement retailer reported that comparable-store sales were weaker than expected.

“We’re seeing a continued shift in the composition of consumption, moving away from goods and back toward services,” said

Garrett Melson,

a portfolio strategist at Natixis Investment Managers. “Naturally, that’s going to weigh on these goods retailers.”

Russia’s war in Ukraine and China’s zero-Covid strategy have also shaken up markets. Declines have been widespread. Bonds, typically a haven, have been falling alongside stocks.  

Consumer discretionary and consumer staples were the worst-performing sectors Wednesday, down 6.6% and 6.4%, respectively. Both sectors were on track for their largest single-day losses since March 2020.

“Our expectation is that growth will start to slow down over the next few months,” said

Salman Ahmed,

global head of macro at Fidelity International, adding that he anticipates that the Fed’s actions will help curb inflation. “Then the next step for the Fed will be to focus on the growth shock.”

Markets have been looking increasingly shaky recently: Stocks, bonds and crypto have all been falling as investors struggle to manage the large swings roiling financial markets around the globe. WSJ’s Caitlin McCabe looks at some of the causes behind the recent market frenzy. Photo: Spencer Platt/Getty Images

The mix of concerns hitting markets has led Mr. Ahmed to adopt a more cautious investment approach in recent weeks, he said. 

Investors are also monitoring whether Russia’s war against Ukraine could further bolster geopolitical tension. Finland and Sweden formally applied for NATO membership on Wednesday, a move that, if approved, would fundamentally transform the security landscape of Northern Europe. 

The yield on the benchmark 10-year Treasury note declined to 2.884% from 2.969% Tuesday. Yields and prices move inversely. 

Overseas, the pan-continental Stoxx Europe 600 closed down 1.1%. The British pound fell about 0.6% against the dollar after fresh figures showed that U.K. annual inflation reached a four-decade high of 9% in April as higher energy prices fed through households’ utility bills.

In Asia, new data showed that Japan’s economy contracted in the first three months of this year, when restrictions related to a resurgence of Covid-19 infections held back consumer spending. Despite that, Japan’s Nikkei 225 closed 0.9% higher. 

Traders worked on the floor of the New York Stock Exchange on Monday.



Photo:

Courtney Crow/Associated Press

South Korea’s Kospi and Hong Kong’s Hang Seng each added 0.2% Wednesday. China’s Shanghai Composite declined about 0.2%.

Write to Orla McCaffrey at orla.mccaffrey@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

Corrections & Amplifications
Federal Reserve Chairman Jerome Powell said Tuesday the central bank’s resolve in combating inflation shouldn’t be questioned. An earlier version of this article incorrectly said that Mr. Powell had made the statement on Wednesday. (Corrected on May 18.)

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