If Wal-Mart and Target can’t navigate inflation, then who can?

Read full post at forexlive.com

The wheels are truly coming off today in markets as we carve out new lows.

• S&P 500 down 136 points or 3.36%
• Nasdaq down 4%

The trigger is a 26.5% fall in shares of retail giant Target after it badly missed earnings estimates due to higher costs, inventories and supply chain issues. Yesterday Wal-Mart fell 11% on a similar issue and it’s down another 6.6% today.

If Wal-Mart and Target can’t manage supply chains and inflation, then who can? Those two companies are the world champions of supply chain management, pricing and steady profitability. They’re mom & pop stocks that aren’t supposed to move in double-digit increments. The recent declines in both are the worst one-day moves since 1987.

That kind of volatility puts fear into the market. It’s one thing when high-flying tech gets cut down, it’s another when nearly two years of gains in Target shares are wiped out in a day.

Corporations are now going to be in a battle to preserve profitability. They will do that buy cutting costs and raising prices. That threatens a negative feedback loop right through the economy.

One of the bullish pillars at the moment is capex spending but Amazon already signaled a slowdown in building. Companies that were once confident enough to expand could start to anticipate a slowdown in demand and hunker down.

The other question to ask

It’s what will rescue the market? At one point you might have said low multiples but with earnings now in question, you can’t have confidence in the E side of the P/E equation.

The Fed another other central banks, meanwhile, are actively working against the market.

Consumer balance sheets are healthy but there’s a real risk that more of the disposable income goes towards food and energy. And once a recessionary mindset hits, people will hunker down.

We may be only weeks away from hearing about layoff announcements.

At some point the market will want to look through rate hikes and a short-term economic slowdown but right now the picture is too murky.