Dow plunges 1,100 points after Target earnings implosion adds to risk of a recession

·3 min read
Trader at the NYSE
Traders work the floor of the New York Stock Exchange during morning trading on May 05, 2022 in New York City. Stocks opened lower this morning after closing high on Wednesday after the Federal Reserve announced an interest-rate hike by half a percentage point in an effort to further lower inflation.Michael M. Santiago/Getty
  • US stocks plunged on Wednesday after a surprise earnings miss from Target shocked investors.

  • Target stock fell 25% after the company said rising fuel, freight, and other input costs are hurting profit margins.

  • While Target said profit margins are getting squeezed due to inflationary pressures, it believes the consumer remains on solid footing.

The Dow Jones plunged more than 1,100 points on Wednesday as investors assessed the implications of a surprise earnings miss from Target.

Target stock plunged as much as 27% in Wednesday trades after the retailer reported lower profits than expected. The retailer cited a surge in fuel and freight costs as weighing on profitability, and expects at least a $1 billion hit to its bottom line this year.

Target said its operating margin of 5.3% "was well below expectations," reflecting its work to cut down excess inventory as well as higher costs for freight and transportation. Its operating margin was 9.8% in the same quarter in 2021.

The implosion in Target's stock follows Walmart's poor earnings release on Tuesday, which sent its stock plunging more than 11%. While Walmart and Target said a mix of poor-selling inventory and higher input costs weighed on profitability, they both said the consumer still remains on solid footing from their view.

But investors are now pointing to the big earnings miss from retailers as an added sign that an economic recession is imminent.

Here's where US indexes stood at 1:58 p.m. ET on Wednesday:

The US has proposed tariffs on Russian oil to limit energy price rises from the EU's potential ban on it as it talks with European allies. The tariff would come into place before the European Union imposes a full ban on Russian oil by the end of this year.

Russia is closing in on a possible sovereign debt default for the first time in nearly 100 years, a new report says.

The Kremlin is 90% likely to default within the year, according to ICE Data Services, which tracks insurance on debt meant to protect investors. The odds of Russia missing further payments spiked Wednesday as investors consider the likelihood of the Biden administration blocking bond payments to US creditors.

Wells Fargo's CEO said there is "no question" of an economic downturn in the US and a recession looks difficult to avoid. Speaking to the Wall Street Journal's "Future of Everything Festival" on Tuesday, Charlie Scharf said, "It's going to be hard to avoid some kind of recession."

Consumer prices across the UK economy surged by the most in 40 years in April, as rising energy and food bills deepened a cost-of-living crisis that threatens to plunge the country into recession later this year. Year-on-year consumer price index inflation hit 9% in April, the Office for National Statistics said Wednesday, up from 7% in March.

West Texas Intermediate crude oil fell as much as much as 5.20% to $106.55 per barrel. Brent crude, oil's international benchmark, fell as much as 2.88% to $108.71.

Bitcoin fell 2.94% to $28,942. Ether prices fell 4.02% to $1,956.

Gold fell as much as 0.37% to $1,811.20 per ounce. The yield on the 10-year Treasury fell 8 basis points to 2.89%.

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