The American consumer, crushed by inflation and the rise in gasoline and rents is starting to be glaring, and perhaps faltering. This is basically what is revealed by the poor results of large-scale distribution companies, such as Walmart and Target, whose disappointing performances caused a mini-earthquake on Wall Street on Wednesday May 18. The S&P 500 index lost more than 4% at the end of this session – it is down 17% since the start of the year – while the Nasdaq, rich in technology stocks, fell 4.73% – it dropped 27% since 1er january).
The operators had been deaf on Tuesday when the President of the American Federal Reserve (Fed, central bank) Jerome Powell had announced that he would raise the rates of the monetary institution as long as it was necessary to kill inflation; they fell back to earth on Wednesday when the American consumer showed by his behavior that the country was in danger of sinking into recession.
On Wednesday, in a single session, the American discount giant Target lost 25% of its stock market value, unheard of since the crash of 1987. The firm, which had just published results below expectations, mainly indicated that it preferred to absorb the rise in costs generated by bottlenecks, the surge in raw materials, energy and transport prices – higher by 1 billion dollars (950 million euros) compared to forecasts – and rising wages, rather than passing them on to consumers. “We did not anticipate the rapid changes we have seen over the past sixty days”said CEO Brian Cornell.
The clear explanation can be found at Walmart, America’s largest employer and supermarket giant, which lost 18% of its value on the stock market in two days: consumers no longer want to pay; more of them have given up buying new clothes and other merchandise due to the surge in gas and groceries, Walmart told CNBC. Some have turned to cheaper brands or those from distributors and have chosen items with smaller quantities, such as half-packs of milk.
Negative growth in the first quarter
Added to this is a shift towards services, noted by Target: Americans are buying fewer durable goods, such as televisions or exercise bikes and reallocating their spending towards services, in particular tourism. Stores specializing in DIY or homework are resisting, while Americans are building single-family homes to escape the crowding of the pandemic. But generally speaking, all retail stocks (BestBuy, Dollar General, Costco, Macy’s) lost more than 10% on Wednesday.
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