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Shares fall as retail sales beat, earnings target missed

U.S. stocks fell on Wednesday as Wall Street weighed an earnings warning from retail watchdog Target against government retail sales data that showed robust consumer spending ahead of the key holiday season.

The S&P 500 (^GSPC) fell 0.8%, while the Dow Jones Industrial Average (^DJI) fell about 0.1%. The technology-tracking Nasdaq Composite (^IXIC) fell 1.5%.

The Commerce Department said Wednesday that retail sales rose 1.3% in October as Americans splurged on food, gas and big-ticket items last month despite inflationary pressures. Economists surveyed by Bloomberg expected a headline increase of 1[ads1].0% after activity was flat in the previous month.

A strong print could derail the market’s uptrend, with investors likely to interpret robust spending as a sign to Federal Reserve policymakers that aggressive rate hikes may continue.

All eyes were on Target (TGT) as it plunged 13% after a third-quarter earnings report that came with a wide margin and weak guidance for the holiday quarter. The retailer was pressured by a slowdown in consumer spending on discretionary items and said store looting cut its gross profit margin by $400 million so far this year.

“In the final weeks of the quarter, sales and earnings trends softened significantly, with guests’ shopping behavior increasingly affected by inflation, rising interest rates and economic uncertainty,” Target Chairman and CEO Brian Cornell said in the earnings release. “This resulted in earnings development for the third quarter well below our expectations.”

In other pockets of the market, the U.S. dollar lost ground while oil rose slightly as geopolitical jitters eased after a Russian-made missile struck Poland on Tuesday and renewed fears of an escalation in Russia’s war in Ukraine. President Joe Biden met with NATO allies Wednesday at the G20 gathering in Bali, Indonesia, and addressed concerns while asserting that U.S. officials will support Poland as it investigates whether the missile was fired from Russia.

Back on domestic territory, stocks have held up so far this week after a lower CPI reading on Thursday spurred a big relief rally. October’s producer price index (PPI), another key inflation gauge, rekindled that optimism in Tuesday’s session, along with comments from Federal Reserve members in recent days that hinted at a possible slowdown in rate hikes.

“We should all keep in mind that Fedspeak is quite patchy at the moment, and you can get a hawkish or dovish view depending on which official you ask,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office, said in a note. “The market is also digesting how much inflation is impacting the consumer, with key retail earnings beating expectations and retail sales coming in.”

Shares fall as retail sales beat, earnings target missed

WASHINGTON, DC – MAY 23: (L-R) Federal Reserve Vice Chairman Lael Brainard shakes hands with Jerome Powell on May 23, 2022 in Washington, DC. (Photo by Drew Angerer/Getty Images)

On the earnings front, retail revenues other than Target’s have so far topped analyst estimates.

Home improvement store Lowe’s ( LOW ) beat analysts’ forecasts on Wednesday. Shares rose 3% at the open, although the company trimmed the top end of its full-year revenue guidance.

Megastore Walmart ( WMT ) benefited from more value spending by customers squeezed by inflation and a “significant” improvement in inventory gluts, while higher prices helped offset fewer transactions at Home Depot ( HD ). And TJ Maxx TJX Companies ( TJX ) lifted its sales forecast after reporting strong demand in the third quarter.

Another round of sector peers is still on deck to report, with results from Victoria’s Secret ( VSCO ) due on Wednesday. Nvidia ( NVDA ) is another big headliner on the earnings document.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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