U.S. Stock markets fall sharply as investors worry about recession.

U.S. stocks fell sharply, with two of the major indexes suffering their worst day since 2020, as the latest set of disappointing earnings from large retailers raised investors’ fears of a recession.

The Dow Jones Industrial Average closed Wednesday down 1164.52 points, or 3.6%, to 31490.07, its lowest closing level since March 2021. The S&P 500 dropped 4%, or 165.17 points, to 3923.68, while the tech-focused Nasdaq Composite slid 4.7%, or 566.37 points, to 11418.15. 

The S&P 500 started the year having more than doubled from the lows it hit in March 2020, an upswing that went into reverse almost immediately as the calendar flipped to 2022.

The main factor cited by investors and analysts for the market’s weakness is the policy change at the Federal Reserve. As the pandemic took hold, the U.S. central bank put in place emergency policies to stabilize the economy that investors say also emboldened buying of stocks and other riskier assets. But the Fed early in 2022 signaled it was pivoting to tighter monetary policy in order to tamp down surging inflation, a significant change to the investing environment.

The sell-off began after Target said supply chain costs and inflationary pressures had cut into its profits and customers were buying fewer higher-margin items such as kitchen appliances, televisions and furniture.

The retailer’s announcement came a day after Walmart said its profit had also been hit by higher costs. The latest news from Target led to a sell-off for retailers including Amazon, BestBuy, Costco and Dollar General.

Investors are increasingly concerned that rising inflation, and the Federal Reserve’s plans to tackle it by sharply hiking interest rates, will trigger a recession.

“The consumer is challenged,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “We started to see at the end of the year that consumers were turning to credit cards to pay for the rise in food prices, rise in energy prices, and that’s actually gotten much worse. … This is going to hurt those bellwether retail places and Walmart tends to be one of them.”

Target shares tumbled 24.9% Wednesday after the retailer reported first-quarter earnings that were much lower than Wall Street estimated because of higher costs for fuel and compensation. The retailer also saw lower-than-expected sales for discretionary merchandise like TVs.

Fast-growing tech stocks are closely linked to the decisions of the Federal Reserve. These rate-sensitive companies have high price-to-earnings ratios because they’re typically valued on future profits and pay no dividends. Higher rates mean that future earnings will be worth less than they are today.

Cyclical stocks also dropped Tuesday. Dow component 3M fell nearly 3%, and shares of UPS fell more than 3%, even though both companies beat earnings expectations.

General Electric plummeted nearly 10% after warning that its 2022 outlook was “trending toward the low end of the range.”

Asian markets also retreated Tuesday as economic shutdowns in China, triggered by the country’s zero-Covid policy, disrupted global supply chains. China is a big customer in the US tech and semiconductor markets.

Investors also remain worried about the geopolitical turmoil linked to Russia’s invasion of Ukraine. A top Russian official said Tuesday that the threat of nuclear war is real. 

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