Broad Selloff Sinks S&P 500 and Nasdaq 4% Deeper

Barry Adams
18 May, 2022
New York City

U.S. stocks fell at the opening and gradually declined and sank to lower lows as the session progressed. 

Investors turned cautions after four large retailers Walmart, Target, Lowe's and Home Depot reported weak quarterly results and highlighted inflation and wage pressures, rising freight costs and challenges in managing inventories. 

TJX, the operator of TJ Maxx, Marshalls and HomeGoods, reported sharply higher sales and earnings, bucking the trend. 

The S&P 500 index declined 4.04% to 3,923.68 and the Nasdaq Composite index fell 4.7% to 11,.418.15. 

The indexes closed down after four days of gains. 

The Nasdaq Composite sank deeper into bear territory with a year-to-date loss of 27.9% and the S&P 500 index extended losses in the year to 18.2%. 

Investors focused on how companies are handling inventories and supply chain problems and were also looking for clues how the consumer is reacting to higher prices at stores and at gas stations. 

Walmart said many of its price sensitive customers are switching to store brands and buying fewer items and making fewer trips to stores. 

Home Depot also reported fewer transactions but a small increase in average ticket size. 

Unusually cold weather also impacted sales of pool supplies, lawn chemicals and other seasonal items forcing retailers to increase markdowns. 

However, Target added the consumer is healthy and spending more on items that are linked to experiences such as birthday parties and travel but avoiding high margin discretionary items. 

The indexes have been on the defensive for the last seven weeks as rising fuel and food prices are leaving customers with less money to pay for discretionary items. 

Target's weak earnings follows Walmart's earnings on Tuesday after the largest retailer lowered expectations for the rest of the year. 

On the back of weak results from four leading retailers, stocks in the sector fell and brought down wider indexes as well. 

Market is increasingly worried that there is more pain in the economy and the company's valuations are still not reflecting lower future streams of earnings, higher interest rates, slowing down economic conditions.  

Dollar General declined 11%, Dollar Tree fell 14%, Five Below plunged 11.4%, Kohl's Corp fell 10.9%, and Macy's decreased 10.6%. 

Crude oil fell 3.2% to $109.51 after rising as much as 0.5%. 

The yield on 10-year U.S. Treasury notes edged down but traded near 2.877%. 

Weekly mortgage applications declined 12% at the end of last week from the previous week and fell 15% from a year ago according to Mortgage Bankers Association. 

Separately, home builders association reported the confidence index declined 8 points to 69 in May, a fifth monthly decline in a row and lowest since June 2020. 

The single family starts in April declined 7.3% to 1.1 million units annual rate adjusted for seasonal factors, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The multifamily sector, which includes apartment buildings and condos, increased 15.3% to an annualized 624,000 rate. 

European markets turned negative on the growing worries of rising inflation and lagging central bank's response. 

The U.K. inflation accelerated to 9% in April from 7% in March driven by rising food and fuel prices, the Office of National Statistics said today. 

The 40-year high inflation is likely to peak in October around 10% before it declines.

Moreover, new car registration in the European Union declined for the fourth month in a row in April. the European Automobile Manufacturers' Association said today. 

The DAX index declined 1.3% to 14,007.76, the CAC-40 index dropped 1.2% to 6,352.94, and the FTSE 100 index fell 1.07% to 7,438.09. 

Asian markets closed mixed after Japan reported GDP and industrial production data. 

Japan's GDP in the first quarter contracted at 1% annualized rate, the Cabinet Office said today. The preliminary data showed that the economy rose at 0.2% rate after adjusting for seasonality factors. 

The decline was less than the 1.8% fall estimated by many economists. The GDP growth data for the previous quarter was lowered to 3.8% increase from the 5.4% rise in the preliminary estimate. 

The weakness in international trade dragged the economic activities lower. 

Industrial production in March rose 0.3% after adjusting for seasonal factors, the report from the Ministry of Economy, Trade and Industry noted today. 

In Tokyo, the Nikkei index increased 251.45 or 0.94% to close at 26,911.20. 

Market indexes in Australia rose nearly 1% but in India and South Korea  eased and in Hong Kong edged higher.