Wall Street Skids as Target, Growth Stocks Sink

Wall Street ended sharply lower on Wednesday, with Target losing around a quarter of its stock market value and highlighting worries about the U.S. economy after the retailer became the latest victim of surging prices.

It was the worst one-day loss for the S&P 500 since June 2020.

Dow Loses 1,164 Points

The Dow lost 1,164.52 points, 3.57%, to end at 31,490.07. Nasdaq sank by 4.73% to end at 11,418.15, and the S&P 500 was down by 4.04% for a 3,923.68 close.

Target Corp.'s first-quarter profit fell by half and the company warned of a bigger margin hit on rising fuel and freight costs. Its shares fell over 25% in their worst session since the Black Monday crash on Oct. 19, 1987.

The retailer's results come a day after rival Walmart Inc. trimmed its profit forecast.

"We think the developing impact on retail spending as inflation outpaces wages for even longer than people might have expected is a principal factor in causing the market sell-off today," said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. "Retailers are starting to reveal the impact of eroding consumer purchasing power."

Earlier in the day, the Wells Fargo Investment Institute reduced its economic expectations, saying it foresees a mild U.S. recession now on the horizon in its base-case scenario for the end of 2022 and early 2023, making it one of the more bearish big U.S. banks.

Interest-rate sensitive megacap growth stocks added to recent declines and pulled the S&P 500 and Nasdaq lower. Tesla Inc., Nvidia, Amazon, Apple and Microsoft all fell sharply.

"The cons outweigh the pros for growth stocks at this particular moment, and the market is trying to decide how bad it's going to get," said Liz Young, head of investment strategy at SoFi. "The market is fearful of the next six months. We may find out that it doesn't need to be as fearful as this, and markets do tend to overreact on the downside."

All of the 11 S&P 500 sector indexes declined, with consumer discretionary and consumer staples leading the way lower.

Rising inflation, the conflict in Ukraine, prolonged supply chain snarls, pandemic-related lockdowns in China and monetary policy tightening by central banks have weighed on financial markets recently, stoking concerns about a global economic slowdown.

Federal Reserve Chair Jerome Powell vowed on Tuesday that the U.S central bank will raise rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy.

Traders are pricing in 50-basis point interest rate hikes by the Fed in June and July.

According to preliminary data, the S&P 500 lost 163.59 points, or 4.00%, to end at 3,925.18 points, while the Nasdaq Composite lost 561.50 points, or 4.69%, to 11,423.03. The Dow Jones Industrial Average fell 1,148.11 points, or 3.52%, to 31,506.48.

Nasdaq Down 27% YTD

The S&P 500 is down about 17% so far in 2022 and the Nasdaq has fallen about 27%, hit by tumbling growth stocks.

Wall Street's recent sell-off has left the S&P 500 trading at around 17 times expected earnings, its lowest PE valuation since the 2020 sell-off caused by the coronavirus pandemic, according to Refinitiv data.

The CBOE volatility index, also known as Wall Street's fear gauge, or the VIX, rose to 31 points after falling for six straight sessions.