Stocks Fall Again on Disappointing Retailer Reports, Twitter Wants Musk to Hold Up Deal

Stocks are dipping again Wedneday after a brief rally Tuesday. Walmart and Target both missed their earnings goals for the first quarter, spooking many investors. Meanwhile, Twitter wants Elon Musk to hold up his end of the bargain.

The stock market slipped again Wednesday on reports from retailers like Target that indicate earnings for the first quarter have missed expectations. The US economy is still humming along according to economists, but consumer sentiment is lower than it was during the 2008 recession. This bizarre dichotomy is confounding investors and making it difficult to predict the stock market for the second half of the year.

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The S&P 500 dipped back under 4,000 points Wednesday, falling roughly 3% to lose more ground than it gained during a small rally yesterday. The Dow Jones dropped around 2.5% percent, roughly 800 points, Wednesday during intraday trading. The tech-heavy Nasdaq composite suffered the steepest losses, dropping some 3.5% shortly after 12 PM.

Read More: Check out the latest Mind Your Dollars stock and financial news.

Much of Wednesday’s sell-off can be attributed to a downturn in the performance of American retailers like Target, Walmart, and Dollar General. Reports indicate that Target and Walmart are facing higher-than-expected transportation and labor costs, which have heavily eaten into the companies’ earnings. 

Earnings Report Spooks Investors

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These missed earnings reports from Walmart and Target are the first indication that large-cap companies are feeling the sting of inflation as much as consumers are. However, it’s notable that the main factor pressuring these companies isn’t consumers slowing their spending, but the pressures involved in higher shipping and labor costs.

Tuesday’s short-lived stock market resurgence followed data earlier in the week that suggested that industrial output and consumer spending have remained high. Bizarrely, consumer confidence is low right now despite this encouraging spending behavior. Some economists have suggested this is because US consumers presume the worst is ahead, and that the days of roaring economic growth are in the past now.

“It has been a wild 48 hours in retail. I think one of the things that really stood out to us was just the common patterns,” says Stephanie Wissink, an analyst for Jefferies. “We’re seeing both companies signaling that their stores are seeing stronger traffic versus e-commerce. Both companies are seeing higher costs to execute their business. Consumers are reshaping their behavior, so moving more toward essentials versus discretion.”

Analysts React to Fed Statements

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Tuesday, Federal Reserve Chair Jerome Powell told reporters that “there could be some pain involved in restoring price stability”. The Fed is currently engaging in a series of interest rate hikes aimed at cooling the economy by drawing back demand and shrinking the red-hot market. Powell told reporters that he believes the Fed will likely authorize at least two more 50 basis point interest rate hikes before the end of the year.

Analysts are pricing in Powell’s statements and the potential for the economy to slow in the second half of 2022. “I don’t think he said anything that caught us off guard … but let’s not forget where we are,” says LPL Financial’s Chief Market Strategist Ryan Detrick. Detrick noted that the S&P 500 has been down for six weeks in a row, a historic feat for the previously-roaring index.

“It hasn’t been down seven weeks in a row for 20 years, so we’re awfully oversold here. Then you come in today and you’ve got industrial production pretty solid, you’ve got retail sales pretty solid. Things aren’t perfect, but we just think so much of the negativity that is priced in … it’s just a little overboard for us, and we think this could very well be an opportunity for some of the longer-term investors here.”

Twitter Wants Musk to Hold Up Buyout Deal

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In two statements issued on Tuesday, social media company Twitter stated it would seek action to force Elon Musk to hold up his end of a deal to purchase the company for $44 billion. Yesterday, Musk noted in a tweet that he didn’t want to purchase the company if it couldn’t prove that less than five percent of its active users are bots.

Twitter “is committed to completing the transaction on the agreed price and terms as promptly as practicable,” the company states in a Securities and Exchange Commission report. “We intend to close the transaction and enforce the merger agreement,” the company dryly reported to Bloomberg. In short, Twitter isn’t playing games with Musk, the CEO of Telsa, who is known for his outlandish online persona and tendency to tweet about sensitive information regarding his companies.

Some critics online have accused Musk of wanting to back out of the deal after tech stocks declined in early March alongside the Federal Reserve’s interest rate hikes. The price of Twitter stocks has sunk to just $38, putting it roughly 30% below the price Musk has offered to buy it at. He’s also suggested he could purchase Twitter for a lower price given what he claims is an abundance of spam accounts and bots on the platform. Time will tell whether Twitter manages to hold him to his $44 billion agreement or if Musk backs off the purchase altogether.

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