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Stock Market Today - 5/18: Dow Tumbles 1,164 Points on Target Miss, Powell Inflation Comments

Stock finish sharply lower Wednesday as Target earnings disappoint and Fed Chair Powell warns 'there could some pain involved' with the Fed's inflation approach.
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Stocks ended sharply lower Wednesday following disappointing results from another major retailer and comments from Federal Reserve Chair Jerome Powell regarding the Fed's efforts to combat inflation.

The Dow Jones Industrial Average finished down 1,164 points, or 3.57%, to 31,490, it's biggest decline since October 2020.

The S&P 500 lost 4.04% and the tech-heavy Nasdaq dropped 4.73%. 

Supply Chain Woes

The Dow's decline was its eighth worst one-day point decline ever. The S&P 500 and Nasdaq point slides were also among each index's ten worst.  However, none of the major index's percentage declines ranked in the top 20.

Target  (TGT) - Get Target Corporation Report shares cratered nearly 25% after the giant Minneapolis retailer reported fiscal-first-quarter earnings that came up short of analyst estimates.

Target's earnings miss came one day after Walmart  (WMT) - Get Walmart Inc. Report posted weaker-than-expected fiscal-first-quarter earnings and reduced its full-year profit forecast, as surging costs ate into the bottom line of the world's biggest retailer. Shares were down 6.8%

"Thanks to healthy consumer spending, both Target and Walmart announced that their first-quarter sales rose, but both companies were impacted by high transportation costs and supply chain woes," said Louis Navellier, founder of money manager Navellier & Associates. "Higher diesel prices are definitely standing out as a drag on operating margins unless these companies decide to raise prices to their customers."

Lowe's  (LOW) - Get Lowe's Companies Inc. Report shares end down 5.2% after the Mooresville, N.C., home-improvement chain reported Q1 net income exceeded estimates while revenue came up short.

"Now that's spring has finally arrived, we are pleased with the improved sales trends we are seeing in May," CEO Marvin Ellison said.

Despite Walmart's disappointing report, stocks finished higher on Tuesday amid news that Shanghai had recorded its third consecutive day with no new covid infections. That's an important benchmark that could trigger the easing of restrictions on business and travel in China's biggest city.

The city of 25 million reported a fourth consecutive day without any new infections in the community, holding on to its prized "zero covid" status, according to Reuters.

On Wednesday, Shanghai authorities granted approval to 864 of the city's financial institutions to resume work, Reuters reported.

'There Could be Some Pain Involved'

Powell said the Fed was determined to reduce inflation and reiterated that it hoped to do so without prompting a jump in joblessness. The Fed is aggressively raising rates to reduce price pressures.

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In an interview at the The Wall Street Journal's Future of Everything Festival, he signaled that in both June and July, the central bank likely would repeat the half-percentage-point rise in rates it put in place early this month.

"Restoring price stability is an unconditional need. It is something we have to do," he told the Journal. "There could be some pain involved." 

Edward Moya, senior market analyst for the Americas with Oanda, said "the strength of the consumer will be tested as both Walmart and Target signal rising pricing pressures are not easing."

"The Dow Jones Industrial suffered its worst loss since 2020 as investors doubt the Fed will be able to deliver a soft landing as the inflation outlook might warrant much more aggressive tightening of monetary policy," he said.

Moya added that consumer discretionary got hit the hardest as investors are reassessing the timing of when inflation will ease.

"It looks like the consumer has got a couple of rough quarters ahead and that will continue to drive economic growth concerns over the next few months," he said.

The Commerce Department reported that U.S. single-family home building and permits fell in March as higher mortgage rates increased costs, Reuters reported.

Economists polled by Reuters had forecast starts declining to a rate of 1.765 million units.

Mortgage rates have surpassed 5% for the first time in a decade. However, homes remain in short supply, boding well for the homebuilding industry.

The latest data showed a strong backlog of homes that have been approved for construction but on which building hasn’t started.

JPMorgan Chase  (JPM) - Get JP Morgan Chase & Co. Report shareholders voted against the company's proposal to pay Chief Executive Jamie Dimon a $50 million retention bonus as part of its compensation plans.

At the annual meeting, less than a third -- 31% -- of the banking giant's holders voted in favor.

The vote isn't binding, but The Wall Street Journal called it a rare rebuke to Dimon's leadership of the company. Dimon was paid $34.5 million as compensation for 2021.