Stock markets sell off as inflation fears settle in

Stock markets were a sea of red on Wednesday as financial results from major retailers suggested they're having a hard time dealing with stubbornly high inflation.

The S&P 500 was down by more than four per cent, its worst one-day showing since June 2020 as investors reacted to troubling signs that consumers are slowing their spending in the face of high prices.

Shares in Target shed more than 25 per cent of their value after the retailer said its profit was cut in half because of higher costs and supply chain problems. It was the worst day for Target's shares since Black Monday in 1987, and it came a day after rival Walmart painted a similar picture the day before.

Walmart's shares fell by more than 11 per cent on Tuesday and another seven per cent on Wednesday, after the retailer warned of lower profits to come due to higher costs for transportation and wages, as well as supply chain issues. Tuesday's sell-off was also the biggest one-day plunge in Walmart shares since 1987.

That gloom coming from two cost-conscious retailers sparked investor fears that if they are having problems navigating high inflation, many others must be, too.

"The strength of the consumer will be tested as both Walmart and Target signal rising pricing pressures are not easing," analyst Edward Moya with foreign exchange firm Oanda said.

The Dow Jones Industrial Average shed almost 1,200 points, its worst day since October 2020, and the technology focused Nasdaq lost more than 500 points or more than four per cent.

Since the start of the year, the Dow is down by 14 per cent, the S&P by 18 per cent and the Nasdaq by 28 per cent, data from Bloomberg shows.

"Stocks are crumbling after Wall Street worries about economic growth after hearing a chorus of concerns of higher prices that won't be easing anytime soon," Moya said.

Statistics Canada reported on Wednesday that the country's inflation rate ticked upwards again last month, to a new 31-year high of 6.8 per cent.

While the Toronto Stock Exchange fared better than its U.S. counterparts, it wasn't immune to the sell-off, losing 389  points, or about two per cent, to close at just over 20,100 points late in the trading day. The benchmark Canadian index has lost about seven per cent of its value since the start of the year, and has been mostly lower of late since topping out at over 22,000 points in April.

"It's a really rough day out there for stock markets," Colin Cieszynski, chief market strategist at SIA Wealth Management, said in an interview with CBC News.

"The retailers in particular are starting to get squeezed between rising costs and softening demand," he said. "We've just been seeing a stampede for the exits across stock markets today."

Tech shares hit hard

Technology shares, which soared earlier in the pandemic as the world went increasingly digital and online due to COVID-19 lockdowns, continue to get hammered.

Apple shares lost six per cent to trade at their lowest level since October. Amazon shares lost seven per cent and the shares are now trading where they were in April 2020. Netflix lost another seven per cent and now trade at their lowest level since 2018.

Canadian tech companies also sold off, with shares in e-commerce firm Shopify, payment processing company Lightspeed and BlackBerry all off by about three per cent.

Cieszynski said the sell-off in technology shares makes sense, because the sector "tends to benefit ... when investors are feeling confident and when investors are willing to take on risk."

"At a time when investors are retrenching, turning away from risk and going more defensive, [technology] tends to underperform," he said.

Bitcoin dips below $30,000

Bitcoin was no exception as the world's largest cryptocurrency continued its plunge, losing another five per cent to trade below $30,000 US. Though always volatile, prior to this month Bitcoin hadn't traded below that level since the summer of 2021.

"The speculative cryptocurrency excesses of 2021 may mark a similar fate for risk assets, as when the internet bubble burst in 2000," Bloomberg Intelligence analyst Mike McGlone said.