American stock indices yesterday experienced a record drop since 2020, caused by weak quarterly reports from the country’s leading retailers – Walmart, Target, Home Depot and Lowe’s. Retailers have been hit by accelerating inflation, which many analysts say could slow the recovery of the entire economy from the COVID-19 pandemic.
Yesterday’s fall in US stock indices by 3.6-4.7% was a record since June 2020, when severe coronavirus restrictions were in place in many countries around the world. The sell-off on the stock exchanges was led by the quarterly reports of the leading US retail companies – Walmart, Target, Home Depot and Lowe’s, released in the last two days, which investors and analysts paid special attention to. They were trying to understand how the acceleration of inflation, which many countries are now experiencing, including the United States, is affecting the retail business. Back on Tuesday, when the statistics came out data about slightly grown April retail sales (by 0.9%), analysts hoped that the US business was able to adjust to rising prices. However, the reports that followed did not justify these hopes.
US largest retail chain Walmart informedthat in the first quarter its operating profit fell by 23%.
CEO Doug McMillon stressed that “US inflation, especially in the food and fuel segments, has had a larger-than-expected impact on our margins and operating costs.”
As a result, Walmart shares after the publication of financial statements fell by 10%. Even more – by 25% – the shares of Walmart’s competitor, the retail chain Target, fell. This fall was a record for the company since 1987. Target informedthat its shipping and other operating expenses this year will be $1 billion higher than previously expected. At the same time, the company noted that it will try to do everything not to shift the increase in costs to consumers, and will keep prices in its stores, according to analysts, this will affect the profit of the retail chain.
The negative mood of investors strengthened after the weak reporting of non-grocery retail chains – Home Depot and Lowe`s, which showed a decrease in sales by 3.8% and 4%, respectively. After the publication of reports, the shares of these companies fell in price by more than 5% and pulled the quotes of other US retail chains – BestBuy, Macy`s, Costco, etc., which fell yesterday by 10-15%.
According to analysts, the current problems in the US retail sector suggest that inflation can have a serious impact not only on this sector individually, but also on the recovery of the entire economy.
“Key sales figures look very weak,” he said. The Wall Street Journal Neil Saunders, director of retail analysis at Global Data. “This suggests that consumers have begun to retreat.” “Consumers are experiencing problems— stated Megan Horneman, investment director at Verdence Capital Advisors, on CNBC TV channel. — At the end of last year, we began to notice that people were more likely to use credit lines on cards to cope with rising food and fuel prices, and now the situation has become even more complicated» .
According to Jeff Sik, an analyst at Circle Squared Alternative Investments, rising retail costs, coupled with a reduction in consumer activity, can not only slow down the economic recovery after the COVID-19 pandemic, but also lead to a recession. “In retailer reporting, we have seen that the consumer is taking a break and reducing their spending, as they are not sure what will happen next. It seems to me that we are already in a recession, but new data may show that the recession will be even deeper than you might expect,” he said in an interview. Fox Business.