Stock futures fall as retail sales beat, Target earnings miss

US stock futures slumped Wednesday morning as Wall Street weighed an earnings warning from retail bellwether Target against government retail sales data that showed robust consumer spending ahead of the key holiday season.

Futures tied to the S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) hovered below the flatline, while contracts on the technology-heavy Nasdaq Composite (^IXIC) were off by 0.2%.

The Commerce Department said Wednesday retail sales jumped 1.3% in October as Americans shelled out for food, gas, and big-ticket items last month despite inflationary pressures. Economists surveyed by Bloomberg expected a headline increase of 1.0% 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.

All eyes were on Target (TGT) as it plunged 15% in the premarket trade following a third-quarter earnings report that came in off by a wide margin and weak guidance for the holiday quarter. The retailer was pressured by a slowdown in consumer spending on discretionary merchandise and said 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 said in the earnings release. “This resulted in a third-quarter profit performance well below our expectations.”

In other pockets of the market, the US dollar lost ground while oil gained slightly as geopolitical jitters eased after a Russian-made missile struck Poland Tuesday and reigned 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 US officials will support Poland as it investigates whether the missile was fired from Russia.

Back in domestic territory, 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 Tuesday’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.”

WASHINGTON, DC – MAY 23: (LR) Vice Chair of the Federal Reserve Lael Brainard shakes hands with Jerome Powell on May 23, 2022 in Washington, DC. (Photo by Drew Angerer/Getty Images)

On the earnings front, retail earnings other than Target’s have so far topped analyst estimates.

Home improvement store Lowe’s (LOW) beat analyst forecasts Wednesday. Shares rose nearly 2% ahead of the open even as the company trimmed the top end of its full-year revenue guidance.

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 premarket trading.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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