Investors are concerned about an economic recession, as a ‘risk off’ sentiment dominates global investment markets.
The Dow Jones lost more than 1,100 points in the US, closing down 3.57% on the day. The S&P 500 index closed down 4.04%, its largest daily fall since June 2020, and the tech-heavy Nasdaq lost 4.73%.
Before this gloomy Wednesday for US markets, the main indices had rallied earlier in the week, following positive consumer spending data and indications that China was relaxing its ‘zero-Covid’ policy.
However, fresh concerns about a looming economic slowdown reignited investor fears and prompted a sell-off.
One contributor to negative sentiment was a statement from retailer Target, saying that supply chain costs and inflationary pressures had eaten into profits and that customers are buying fewer higher-margin products, including kitchen appliances, televisions and furniture.
Brian Cornell, chief executive at Target, said:
Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time.
Another retailer, Walmart, had also announced its profits were hit but rising costs.
Investors are worried that rising price inflation, and the monetary policy response of higher interest rates, will trigger an economic recession.
Elsewhere in the world, the ASX200 index in Australia fell 1.75% when it opened on Thursday.
Despite negative sentiment being driven by retailers, the US market sell-off was broad-based, including many tech stocks.
It’s been a challenging year to date for US stocks, with more volatility in daily trading and markets more responsive to corporate data.
One factor raising concerns about an economic slowdown or recession is the reaction by the US Federal Reserve to rising price inflation, hiking interest rates in response.
Earlier in the week, US Fed chairman Jerome Powell told a conference that the US central banks would “have to consider moving more aggressively” if inflation fails to ease following their latest interest rate rises.
Global economic growth is another concern for investors. Russia’s invasion of Ukraine is piling on the pressure for oil and food prices, and China’s lockdowns to deal with Covid exacerbating an already challenging situation for global supply chains.