Wall Street had its worst day in nearly two years amid renewed fears of future rate hikes

The stock markets on Wall Street had their worst day in almost two years, after a series of mediocre news in the retail sales sector in the United States and the declarations of the head of the Federal Reserve (FED), Jerome Powell, who said that they will not hesitate to slow down economic growth in order to lower inflation levels.

The Dow Jones index – which gathers the main industrial companies – fell 3.57%, while the technological Nasdaq sank 4.73% and the S&P 500 – which includes the 500 largest companies in the United States – lost 4.03% and once again fell below 4,000 points, at 3,924.18 units.

All sectors of the S&P 500 went into negative territory, while the big names in technology also fell: Amazon lost 7.16%, Apple 5.64% and Netflix 7.02%.

In fact, the Dow Jones and S&P 500 are at lows since March 2021 and the Nasdaq is at its November 2020 level.

The sharp drop in Target supermarket stock (-24.87% to $161.73) – a rare plunge in the retail sector – took all the attention of investors, as it shows how rising prices are starting to weigh on consumption and corporate earnings.

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Target CEO Brian Cornell complained about cost hikes by arguing that it was what led to halving its profits in its latest balance sheet and warned that sales would fall in 2023.

“Target presented this horrible earnings outlook. And then the market sell-off fed back and the more the rates went down, the more the market worried about future results, operating margins and recession,” LBBW’s Karl Haeling told AFP.

Added to this are Powell’s statements at an event in The Wall Street Journal, in which he assured that the Fed’s objective is to “bring inflation to 2%” and “restore price stability”, after the latest inflation data exceeded 8 points year-on-year, the highest in four decades.

“It will be challenging to do it and we have to slow growth to do it,” said Powell, who admitted that “the idea is that growth has to go down for inflation to fall” because “if we raise interest rates that will affect financing conditions and that affects the economy.”

Even so, he pointed out that while “there could be some pain involved in restoring price stability”, his main concern is “maintaining a strong labor market, where unemployment is low”, and that while “it may not be a perfect labor market, it will be strong”.

For City index financial market analyst Fiona Cincotta, “stocks are taking a beating as inflation fears and weak earnings hit market confidence.”

“While strong retail sales helped boost stocks yesterday, disappointing quarterly figures from retail giants Target and Lowe’s are causing fear in the market today. Yesterday’s data suggests that consumers are weathering the inflation hit for now. However, retailers aren’t faring as well in navigating rising input costs,” Cincotta said in an e-mail reported by Bloomberg.

Ryan Detrick, chief market strategist at LPL Financial, argued that “concerns about inflation and a hawkish Fed are nothing new, but now add in worries about profit margins and the impact of inflation on the consumer, and you have a recipe for a big down day.”

“What we’re seeing this week from the big retailers could be a clue as to what a recession would feel like for markets in general,” said Mike Bailey, director of research at FBB Capital Partners.

Major European bourses closed lower on Wednesday, hurt by Wall Street’s sharp drop in the second half of the session on fears of the consequences of inflation for companies that were recovering.

Paris fell 1.20%, Frankfurt 1.26%, Milan 0.89% and London 1.07%. Only Madrid closed in balance and rose 0.01%.