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Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

Stocks Down After Target And Other Retailers Sink

Stocks tanked yesterday after Target and other big retailers plunged.

Target reported earnings yesterday before the open, and even though they posted a 2.62% positive sales surprise, they missed big on earnings with a -27.0% negative EPS surprise. Shares plummeted by -24.9%. They actually saw sales increase (+4.02%) vs. the same quarter last year, but high costs and supply chain disruptions ate into their profits.

That was the same story we saw on Tuesday with Walmart. They posted a 2.39% positive sales surprise, but a -10.9% negative EPS surprise. Sales were up (+2.39%) vs. the same quarter a year ago, but inflation and other costs ate into their profits. They fell -11.4% on Tuesday, and another -6.79% yesterday.

Other retailers fell along with them yesterday with Costco down -12.5%, Dollar General down -11.1%, and Dollar Tree down -14.4%.

In spite of yesterday's big pullback in the market, last Thursday's lows still held.

Although, I must say, yesterday's drop probably did more damage to people's investment psyche than last Thursday's low. After Thursday's late day rebound, followed by Friday's rally, and then Tuesday's surge higher, there was plenty of excitement in the market. So yesterday's plunge hurt.

But again, so far, Thursday's lows held. And it will be interesting to see if that holds true for today as well.

The 'r' word (recession) was being thrown around a lot yesterday with some saying we may already be in one.

True, GDP was down -1.4% in Q1, but the Federal Reserve Bank of Atlanta's GDP Now forecast has Q2 GDP coming in at 2.4%.

And for the record, last quarter's Q1 contraction actually showed lots of positives in the economy with consumer spending up 2.7% q/q, which was a faster growth rate than the previous quarter's 2.5%; business investment was up 9.2%; residential investment was up 2.1%; and final sales to private domestic purchasers were up 3.7% vs. last quarter's 2.6%. (What tanked Q1 GDP numbers was lower government spending, lower exports, and lower inventories, as businesses built up supplies very slowly, in spite of surging demand.)

And that's why the current selloff, when you look past the headlines, looks to be overdone.

Now, as the John Maynard Keynes saying goes, the "markets can remain irrational longer than you can remain solvent."

So one can't dismiss the possibility of going down even further. But there's still a real possibility that last Thursday's correction low of nearly -20% was the low. And if not, each tick down gets us closer to the bottom.

In the meantime, we'll get another look at the economy today with Weekly Jobless Claims, Existing Home Sales, the Philadelphia Fed Manufacturing Index, and Leading Indicators.

And everybody will be watching the market today to see if last Thursday's lows of 3,858.87 can hold (which put the market down as much as -19.6%), or if the -20% threshold can hold (which comes in at 3,837.24).

Regardless, there are plenty of positives in the economy and the market right now, not to mention that the sell-off has pushed valuations down to the lowest level in more than 2 years (since April 2020).

To read more about whether we've hit bottom yet or not, and what to do about it, be sure to read our latest commentary...

Did The Market Finally Hit Bottom?


Kevin Matras

Executive Vice President, Zacks Investment Research


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