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US shares saw their largest rout in almost two years as investors exited equities on the back of poor retailer earnings results and inflation fears. Trading hours on Wednesday saw the Dow Jones Industrial Average lose 3.57% to close at 31490.07, the S&P 500 drop 4.04% to close at 3923.68, and the Nasdaq Composite plummet 4.73% to close at 11418.16. 

While recent routs have been led by investors rotating out of growth (mostly tech) stocks in risk-averse environments, Wednesday’s dive came as poor earnings reports from major retailers impacted the wider market. 

Walmart sank 11% on Monday – its biggest one-day drop in almost 35 years – after it gave a poor forecast of its full-year profit. Its shares then dropped a further 7% after reporting less-than-expected Q1 earnings. “Inflation being this high and moving so quickly, both in food and general merchandise, is unusual,” said Walmart CEO Doug McMillon.

Target, Dollar Tree, and Costco all saw drops too, with Target seeing its worst day since the stock market crash of 1987. 

Post-Market

Numbers from major retailers, where large amounts of Americans do their shopping, can be seen as an ersatz inflationary gauge, with investors beginning to consider how rising consumer prices (and thus decreased spending) will affect bottom lines. 

Says Neil Saunders, managing director of GlobalData Retail, “Investors are concerned because they don’t see the issues resolving anytime soon so the growth prospects are weaker going forward”.

The DXY cut its three-day losing streak with a 0.58% gain as investors turned risk-off. The dollar rose against almost all of its G10 counterparts except the Swiss franc and Japanese yen, while Treasury yields fell, with the 10-year note dropping to 2.88%.

Meanwhile, gold continues to trade flat despite runaway inflation as the precious metal continues to be overshadowed by a strong US dollar, with investors on the defensive against Fed tightening.

Investors are now advised to pay close attention to the upcoming US Initial Jobless Claims figures for the week of 14 May, which will be released on Thursday, 19 May, at 15:30 (GMT+3). 

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.