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Market Snapshot: Dow skids almost 1,200 points, books worst day since June 2020 on stagflation fears, higher costs eroding profits

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U.S. stock indexes plunged Wednesday, led by retailers whose quarterly results confirmed higher costs for fuel and wages are eating into profits, a day after hawkish comments from Federal Reserve Chairman Jerome Powell suggested interest costs may rise further.

All 11 main industry groups in the S&P 500 index were lower, with consumer stocks leading the retreat.

How are stock indexes trading?

The Dow Jones Industrial Average
DJIA,
-3.47%

 fell 1091 points, or 3.4%, to 31,572, and near the session low.

The S&P 500
SPX,
-3.96%

 declined 153 points, or 3.7%, to 3,935.

The Nasdaq Composite
COMP,
-4.68%

 shed 535 points, or 4.5%, trading at 11,447.

On Tuesday, the Dow Jones Industrial Average gained 431.17 points, or 1.3%, to close at 32,654.59, rising for a third straight day. The S&P 500 climbed 80.84 points, or 2%, to finish at 4,088.85. The Nasdaq Composite jumped 321.73 points, or 2.8%, to end at 11,984.52.

What’s driving the markets?

Wall Street was caught in another sharp selloff Wednesday, this time sparked by signs of price pressures at big-box retailers that are eating into corporate margins.

Selling hit the consumer sectors hardest, with Target Corp. TGT shares tumbling 26% after the retailer reported earnings that fell far short of expectations. But tech, energy and other swaths of the market also were swept up.

“Obviously, the pressures we are seeing are from Target, following Walmart, in acknowledging price pressures,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management, by phone.

“I think that people involved in the market are now going to be even more concerned with inflation, and the pressures that it brings to things like margins,” he said. “But sometimes, it’s also run for the hills and ask questions later.”

Pavlik also said there’s not much conviction in the market. ”As someone who might be willing to do some buying of quality companies, why should I step in now, when prices are likely still going to go down?”

Shares of Lowe’s Cos. LOW fell on mixed results from the home-improvement retailer. TJX Cos.
TJX,
+7.05%

shares were up 9.4% to $61.45 Wednesday after the TJ Maxx operator reported double-digit percentage growth in earnings for its first quarter. Cisco Systems Inc. CSCO will report after the close.

Read: Why are stocks falling? Fragile ‘bear market’ bounce underlines investor jitters

Investors also were taking a fresh look at comments from Powell, who on Tuesday spoke of possible “pain” for Americans as the central bank moves resolutely to bring down inflation by raising interest rates. He was speaking at The Wall Street Journal’s Future of Everything event. 

“What concerns me is that the Fed is limited in its tools to tackle the particular type of inflation we are facing. They’re kind of using a hammer to put in a screw,” Kevin Philip, partner at Bel Air Investment Advisors, said in an interview.

For Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, global infrastructure has been an emphasis. “Part of our thought process on that is we think inflation is remaining more persistent, so more real assets exposure is is the tilt we’re looking at really for portfolios,” he said.

For some segments of the market, inflation could be “creating opportunities to grow earnings, unless we start to see absolute levels of economic activity really come down and take that out of the market,” Haworth said.

Read: Fund managers’ cash pile is the biggest since 2001, says Bank of America

On U.S. economic data, construction of new houses fell slightly in April for the third month in a row. U.S. housing starts slipped 0.2% in April to an annual rate of 1.72 million units. U.S. housing permits fell 3.2% in April to an annual rate of 1.82 million units.

Investors also are expecting comments from Philadelphia Fed President Patrick Harker at 4 p.m. Eastern Time.

Which companies are in focus?

Shares of AutoWeb Inc.
AUTO,
-16.06%

were down 16% after plunging 65% Tuesday. The drop came after the company warned investors that it had “substantial doubt” in its ability to continue as a “going concern” given its troubled cash position.

Doximity Inc.
DOCS,
-9.76%

shares fell almost 10% toward all-time lows, following an earnings report that projected an unexpected revenue decline in the current quarter.

How are other assets trading?

The yield on the 10-year note
TMUBMUSD10Y,
2.895%

 declined 8 basis points to 2.89%. Yields and debt prices move in opposite directions.

Oil futures fell, with the U.S. benchmark
CL.1,
-2.77%

down 3.1% near $109 a barrel.

Gold futures 
GC00,
-0.12%

 closed down about 0.2% to settle at $1,815.90 an ounce.

In European equities, the Stoxx Europe 600 
SXXP,
-1.14%

 fell 1.1%, while London’s FTSE 100  
UKX,
-1.07%

 also lost 1.1%.

In Asia, the Shanghai Composite 
SHCOMP,
-0.25%

 ended 0.3% lower. Meanwhile, the Hang Seng Index 
HSI,
+0.20%

finished higher by 0.2% and Japan’s Nikkei 225 
NIK,
+0.94%

 rose 0.9%.

—-Barbara Kollmeyer contributed reporting to this article.

The Fed: Fed will keep raising interest rates until it is ‘confident’ inflation is moving down, Harker says

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