(RepublicanInformer.com)- On Wednesday, the Dow plummeted over 1,100 points, suffering its worst day since 2020 as big retailers reported plunging profits due to 40-year-high inflation.
Target’s first-quarter profit halved as shares fell 25 percent, making it the worst day for Target since the October 19, 1987, Black Monday crash.
Target’s earnings show consumers are ditching high-margin discretionary items in favor of food and household essentials. The retail giant said it sold larger items like appliances and television to make more room for food and essentials.
Target CEO Brian Cornell said this week that the company will have its work cut out for it to restore profitability as costs have remained high due to supply-chain disruptions and inflation. Target expects costs to rise by another $1 billion this year.
Wednesday’s plunge hit retailers hard, with Dollar Tree falling 14 percent, Dollar General and Best Buy both dropping 11 percent, and Amazon falling 7.2 percent.
Meanwhile, Walmart has reduced its profit forecast, citing persistent supply-chain problems and higher payroll costs.
Likewise, Kohl’s cut its full-year earnings forecast as well, warning that the 40-year high inflation is beginning to erode consumer spending and profit margins.
Eric Johnson from Cantor Fitzgerald said Walmart and Target’s numbers show that consumers are reducing discretionary purchases “while company margins return to pre-pandemic levels.”
Investors have been concerned for some time about inflation, but the latest results showing inflation is having an adverse effect on consumer spending are especially worrying, leading some to suspect a recession is coming.
Jeff Sica of Circle Squared Alternative Investments told Fox Business this week that rising prices combined with a consumer spending slowdown may make a recession inevitable.
Sica told Fox Business that the earnings reports from Target and Walmart show that consumers are cutting back on spending and are less confident about the future. While Sica believes we are already in a recession, the signs now indicate “that we’re headed into a deeper recession.”
On Tuesday, Jerome Powell, Chairman of the Federal Reserve, pledged to raise interest rates as high as necessary to stop the surge in inflation.