The evidence that the inflation The high is contaminating the economy is sending investors shivering after numbers from major US retailers U.S showed a reduction in the consumption of more expensive items that generate higher profit margins for companies.
Investors dropped nearly 25% on Target shares on Wednesday after the company’s profit company fall by half as the retailer has had to cut prices on more expensive items, while Walmart have dropped more than 17% since Tuesday’s weak earnings call.
Target’s numbers reveal that consumers spent more on food and household essentials rather than higher-margin non-essential items, while Walmart showed that shoppers switched to lower-margin staples.
In the latest development of that move, Kohl’s Corp cut its 12-month profit forecast on Thursday.
“Retailers are starting to reveal the impact of the erosion of consumer purchasing power,” Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute, said on the same day the bank projected a mild recession between the end of the year. year and the beginning of 2023.
“Consumer purchasing power is eroding at a faster rate than it was a month or two ago. We believe this pace will accelerate even further,” he said.
Eric Johnston, head of equity derivatives and hedges at Cantor Fitzgerald, said: “The (Walmart/Target) numbers are very worrying as they show that consumers are reducing discretionary purchases as company margins return to pre-pandemic levels.
While investors have been worried about inflation for some time, the latest results have reinforced concerns about the impact of consumer inflation, said Ryan Detrick, chief market strategist at LPL Financial.
Chuck Carlson, executive director of Horizon Investment Services, says the retailers’ results appear to be potentially “another indication of maybe a slowdown in the economy.”
“I just wonder if people are really starting to get pressured by fuel costs — both businesses and consumers…when you’re paying more than $5 for a gallon of gas, that’s a smack and a smack for everyone” , said Carlson.
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