Topline
The stock market fell on Wednesday, with the recent rally on Wall Street taking a breather as investors assessed the latest batch of retail earnings—particularly a sharp drop in profits from Target—and minutes from the Federal Reserve’s July policy meeting.
Experts warn that investors should be cautious about “chasing” the recent market rally.
Key Facts
Stocks reversed some of their gains from earlier this week: The Dow Jones Industrial Average was down 0.5%, nearly 200 points, while the S&P 500 lost 0.7% and the tech-heavy Nasdaq Composite 1.3%.
Markets opened lower after a batch of disappointing retail earnings, with Lowe’s reporting a drop in sales while big-box retailer Target said profits plunged 90% compared to a year ago amid steep discounts to offload excess inventory.
“We’ve seen mixed results out of retailers and the big questions are whether the consumer will keep spending and how will they re-allocate their purchases as inflation continues to impact spending choices,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Investors combed through new economic data from the Census Bureau on Wednesday showing that retail sales were flat in July: Auto sales and gas prices declined, though consumers did do more shopping online.
Markets also failed to rally after the release of minutes from the Federal Reserve’s latest policy meeting in July, when the central bank hiked interest rates by 75 basis points for a second time this summer.
Fed officials indicated that they would continue their aggressive interest rate-hiking campaign until there was more clear evidence that inflation has come down significantly.
Surprising Fact:
The meme-stock frenzy has made a comeback in recent weeks. Bed Bath & Beyond saw its stock surge another 27% on Wednesday thanks to a massive boost from meme-stock traders on forums like Reddit’s WallStreetBets. The rally follows a 29% gain for the stock on Tuesday, with shares now having gained over 330% in the month of August alone.
Crucial Quote:
“We would caution investors against chasing this rally,” according to a recent note from Mark Haefele, chief investment officer at UBS Global Wealth Management. “We expect renewed market volatility ahead, and we continue to recommend positioning portfolios for resilience under various scenarios.”
Key Background:
Stocks are attempting to notch a fifth week of gains in a row. The S&P 500 is currently on its best run since late last year amid investor optimism that inflation, which cooled in July for the first time in months, may have finally peaked. The improving economic data has also added to hopes of a pivot in monetary policy from the Federal Reserve, though most experts agree it is still far too early for the central bank to stop raising interest rates. While the S&P 500 was down by over 20% earlier this year, hitting a low point on June 16, markets have since rebounded, with the benchmark index now down just 11% so far in 2022.
Further Reading:
Fed Officials Pledge More Big Rate Hikes Until There Is A ‘Meaningful’ Decline In Inflation (Forbes)
Bed Bath & Beyond Jumps 29% As Meme-Stock Traders Snap Up Shares Despite Analyst Warnings (Forbes)
Walmart Jumps 5% After Solid Earnings And Further ‘Progress’ Reducing Inventory Levels (Forbes)
Dow Jumps 500 Points After Consumer Prices Cool Slightly In July—Has Inflation Peaked? (Forbes)
