Horror has returned to Wall Street trading desks and the portfolios of the average investor.
"Wednesday's sell-off really seems like a chain reaction, with the weakness in retailers feeding into fears that the consumer may be slowing, that inflation remains a problem, that inventories are too high, and this could pressure profit margins," Truist co-chief investment officer Keith Lerner told Yahoo Finance. "When you have such household names moving down so much, this spooked the broader market."
Lerner has been warning of a downturn in markets for months, downgrading his view on stocks back in April. The call looks prescient.
Here's what pros are telling us about the renewed market pressure:
Walmart and Target earnings misses = the possible start of a material consumer spending pullback
The S&P 500 closing under 4,000 is unwelcome for trading algorithms
No signs of peak inflation = tougher Federal Reserve on interest rates
Worries about more hedge fund forced selling (see news of embattled hedge fun Melvin Capital closing up shop)
The big question among market participants is whether the bearish activity in the markets the past two days represents capitulation. Such a happening in the markets is when all of the selling activity is exhausted as speculators are forced out of the fray. In turn, that brings out fresh buyers that are looking for attractive values.
The general vibe on the Street is that more selling is on the way in the near-term.
"No, not yet I’m afraid," Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance on whether we have gotten capitulation. "We got a 10:1 down/up volume day, but neither 10:1 advance/declines nor a VIX in the high 30’s. On top of it, our customers have been resolute net buyers of their favorite stocks. Until/unless I see that behavior change, we haven’t seen capitulation.
Sosnick added that "the fact that retailers led the decline is a big problem. If middle and working class consumers are getting stretched and nervous, it doesn’t bode well for the economy or the market. It’s really hard to expect the market to form a bottom without retail stocks participating."
U.S. stocks plunged on Wednesday after a series of disappointing quarterly results from some major retailers Target, Walmart, and TJX Companies pummeled already beaten up market sentiment. All three companies struck worrying notes on the state of the U.S. consumer and runaway inflation.
"We never expected the kind of cost increases in freight and transportation that we're seeing right now," Target chairman and CEO Brian Cornell told Yahoo Finance.
Investors also further digested remarks from Federal Reserve officials reaffirming their aims of reining in inflation.
By the closing bell, the S&P 500 had slid by 4% in its worst day since June 2020, closing at 3,923.68. The Nasdaq Composite dropped 4.7% to settle at 11,418.15, while the Dow Jones Industrial Average fell by more than 1,100 points, or 3.6%.
Seemingly no areas of the market were safe. Shares of often safe-haven stocks such as Coca-Cola and Apple lost about 6% each on the session.
Stock futures on Thursday as of 5:40 A.M. showed losses on Wall Street will likely continue, with the Dow shedding more than 400 points. Tech heavyweight Cisco's disappointing quarter after the close yesterday isn't helping bruised market sentiment.
Yahoo Finance's Emily McCormick contributed to this story.