US stocks post biggest one-day drop in two years as recessionary fears loom yet again

Blame it on the rising inflation or the fear of recession, many US stocks fell like nine-pins on Wednesday. Nasdaq 100, S&P 500 and Dow Jones Industrial Average, all the three leading US indices posted big declines as corporate earnings weighed heavily on the future outlook. Overall, the US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The fears of recession as witnessed during the global financial crisis 2008-2009 could be one of the factors leading to such a big fall in stock values.

The selloff sent the S&P 500 down 4%, the most since June 2020, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Retail was the major focus of the day in the wake of TGT’s big earnings miss on margin pressures, with narrative discussing inflation pressures and consumer spending shifts, but also largely observing that consumers remain resilient.
Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft.

The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. also slid over 5%.

Cisco Systems Inc., the biggest maker of computer-networking equipment, said it expects revenue to decline in the current quarter, hurt by disruptions stemming from Chinese lockdowns and the Ukraine war. Cisco was quoating 12 per cent lower during after-hours trading session.

Other cyclical and consumer-linked groups were also notably weaker, including restaurants, homebuilders, homebuilders, autos, food/beverage, transports, and banks.

Runaway inflation is leading to weak earnings and hitting market sentiment hard. Disappointing quarterly numbers from retail giants Target and Lowe’s are striking fear into the market today. On the other hand, there have been strong retail sales data as well. Going forward, any indication of demand not being hit will be looked upon as a postivite factor.

Fed’s fight against inflation while managing economic growth remains the biggest factor to watchout for. Investors may expect higher volatility in the weeks and months ahead while long term investors may prepare their investment plan well in advance.