All eyes were on Target (TGT) as it plunged 15% in the pre-market trade following a third quarter earnings report that came in off by a wide margin. The retailer was pressured by a slowdown in consumer spending on more discretionary merchandise and store looting reduced its gross profit margin by $400 million so far this year.
“In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” Target Chairman and CEO Brian Cornell stated in the earnings release. “This resulted in a third quarter profit performance well below our expectations.”
In other pockets of the market, the U.S. dollar lost ground while oil gained slightly as geopolitical jitters eased after a Russian-made missile struck Poland Tuesday and reignited fears over an escalation of Russia’s war in Ukraine. President Joe Biden met with NATO allies Wednesday at the G20 gathering in Bali, Indonesia and defused concerns while asserting U.S. officials will support Poland as it investigates whether the missile was fired from Russia.
Back in domestic territory, the Commerce Department’s latest retail sales report is set for release at 8:30 a.m. ET. Economists surveyed by Bloomberg estimate a headline increase of 1.0% in October after activity was flat during the prior month.
A strong print may derail the market’s uptrend, with investors likely to interpret robust spending as a sign to Federal Reserve Policymakers that aggressive rate increases can continue.
Equities have so far held up this week after a lighter CPI reading Thursday spurred an outsized relief rally. October’s Producer Price Index (PPI), another key inflation gauge, rekindled that optimism in yesterday’s session, along with comments from Federal Reserve members in recent days that suggested a possible slowdown in rate hiking.
“We should all keep in mind that Fedspeak is pretty disparate at the moment, and you can get a hawkish or dovish point of view depending on which official you ask,” Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office said in a note. “The market is also digesting just how much inflation is affecting the consumer, with key retail earnings beating expectations and retail sales coming.”
On the earnings front, retailers that have reported so far topped analyst estimates. Megastore Walmart (WMT) benefited from more value spending by customers pinched by inflation and a “significant” improvement in its inventory glut, while higher prices helped offset fewer transactions at the Home Depot (HD).
Another round of peers in the sector are still on deck to report, with results from TJX Companies (TJX), and Victoria’s Secret (VSCO) due out Wednesday. Nvidia (NVDA) is another major headliner on the earnings docket.
Digital World Acquisition Corp. (DWAC), the a special purpose acquisition company set to merge with Donald Trump’s media company, extended this week’s run after the former president officially entered the 2024 presidential race Tuesday. Shares rose 5% in pre-market trading.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc