Dow drops over 700 points as stocks slide on fears higher costs are eroding profits

Target shares tumble after wide earnings miss

A Wall Street sign is seen at the New York Stock Exchange (NYSE) on Jan. 4, 2022 in New York City.


U.S. stock indexes were trading sharply lower Wednesday, led by retailers whose quarterly results confirmed higher costs for fuel and wages are eating into profits, while hawkish comments from Federal Reserve Chairman Jerome Powell late Tuesday suggested interest costs are likely to rise further also.

What’s driving the markets?

Shares of Target Corp. TGT tumbled 26% after the retailer reported earnings that fell far short of expectations.

“The Target miss on top of misses from Walmart and Amazon certainly is saying something to investors about profit margin pressure,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management said in an interview. “I think there’s significant concerns that higher inflation, higher costs are starting to erode the earnings potential at the corporate level.”

Investors were also taking a fresh look at comments from Powell, who on Tuesday spoke of possible “pain” for Americans as the central bank moves resolutely to bring down inflation by raising interest rates. He was speaking at The Wall Street Journal’s Future of Everything event.

“What concerns me is that the Fed is limited in its tools to tackle the particular type of inflation we are facing. They’re kind of using a hammer to put in a screw,” Kevin Philip, partner at Bel Air Investment Advisors said in an interview.

For Haworth, the emphasis in their portfolio has been global infrastructure. “Part of our thought process on that is we think inflation is remaining more persistent, so more real assets exposure is is the tilt we’re looking at really for portfolios,” Haworth said.

“Because inflation levels are remaining elevated and that’s for some segments of the market creating opportunities to to grow earnings, unless we start to see absolute levels of economic activity really come down and take that out of the market,” Haworth added.

SOURCE: By Frances Due Barbara Kollmeye of Markewatch

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