U.S. stock indexes slipped in choppy trading on Tuesday as investors digested Target Corp’s gloomy margin forecast that spooked the retail sector, while awaiting inflation data due later this week.
Shares of Target slid 4.3% as the big-box retailer said it would have to offer deeper discounts and cut back on stocking discretionary items.
The weak outlook weighed on other retail stocks, with main rival and Dow component Walmart Inc falling 2%. Dollar General, Costco, Home Depot and Best Buy Co Inc fell between 0.4% and 2.3%.
“While Q2 margins are going to be lower than expected for Target, they’re acknowledging the challenges of the environment and preparing to set themselves up for a better second half,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“There’s been a shift in sentiment from two weeks ago to a more optimistic or at least a less pessimistic scenario about where the market could be in three to six months from now, in general.”
Some analysts also noted that while clearing inventories would be negative for these companies in near term, longer term it would help roll-over inflation as costs come down and demand wanes.
“You’re going to see more instances like Target where they have excess inventories that need to be discounted, and that’s going to be actually disinflationary in the intermediate term,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
Seven of the 11 major S&P sectors declined, with the consumer discretionary sector down 1.3%. Energy was the top…
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