The S&P 500 fell today as fears of the Federal Reserve meeting minutes combined with retail earnings anxiety pushed some investors toward the bearish side of things. Why else are stocks down today?
The stock market had a lukewarm start to the day, only to drop even further following the release of the July Fed minutes. Investors are split on the appropriate central bank response to inflation. Indeed, the July Consumer Price Index report detailed virtually zero month-over-month price growth, surprising analysts and economists. While prices are still up 8.5% over the year, some are wondering if the Fed need continue with its hawkish agenda. The central bank has raised interest rates four times this year, often by as much as 75 basis points, a measure which, prior to this year, hasn’t been taken since the 1980s.
The rapid interest rate hikes and offloading of the Fed’s balance sheet have proved effective in slowing the economy down. The Fed’s next actions could be the difference between a stock market comeback and a return to a bear market. As such, it comes with little surprise to see some sheepishness out of investors ahead of a potential make-or-break announcement.
The minutes hinted that controlling inflation would likely mean an additional rate hike, but likely without the same urgency that warranted the prior interest rate increases this year. It seems the rate of future hikes will depend on future reports, like the CPI and Fed-preferred PCE.
Why Are Stocks Down Today?
While the Fed was much of the focus of today, it’s not the only reason stocks are down. Retail sales data released today, showing no change month-to-month, came in below estimates of a 0.1% increase. Additionally, retail giant Target (NYSE:TGT) reported earnings this morning for its fiscal second quarter.
Target massively underperformed, coming in under expectations despite lowering its outlook twice prior to the call. The retailer announced its profit fell almost 90% from last year, largely as a consequence of markdowns of overstocked merchandise.
“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” said Chief Financial Officer Michael Fiddelke. “While our quarterly profit took a meaningful step down, our future path is brighter.”
One of the biggest winners of the Covid-19 pandemic, the company has seen its sales margins dwindle in the face of rising inflation. Rather than raise prices, the company has taken to slashing the costs of its goods to maintain demand. Despite this, the company has struggled with overstocked inventory across its retail locations.
The company posted earnings per share of 39 cents, compared to 72 cents expected, and revenue of $26.04 billion, in line with expectations.
Target is one of the largest retailers in the country. Because of this, earnings reports from the company tend to reflect trends in consumer spending and retail sales. Investors were clearly made a bit sheepish from Target’s earnings figures.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.