The S&P 500 and Dow extended losses on Thursday as Cisco Systems declined after giving it a disappointing outlook, while investors were worried about the impact of rising inflation on economic growth and corporate earnings.
Shares of networking gear maker fell 12.7% as it cut its outlook for revenue growth in 2022, hitting material shortages due to exits from Russia as well as China’s lockdown.
Kohls Corp. fell 1.1% after the departmental store chain cut its full-year profit forecast, the latest U.S. retailer to hit a four-decade high of inflation.
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The S&P Consumer Staples Index fell 1.9% to a seven-month low and the biggest fall among the 11 major sectors as retailers have been hit by rising prices, hurting the purchasing power of U.S. consumers.
Randy Frederick, managing director of Charles Schwab Trading and Derivatives in Austin, Texas, said:
Consumer spending accounts for more than two-thirds of U.S. economic activity.
In the previous session, the S&P 500 and Nasdaq closed up more than 4% as growth stocks sank and retailer Target Corp posted weak results.
The benchmark index will confirm a close market territory 18.6% below and 20% below its record close on January 3, joining its technology-heavy peer Nasdaq.
Rate-sensitive growth has led to a sell-off this year as investors adjust to the tightening of the financial situation as the US Federal Reserve raises rates.
Ryan Belanger, managing principal and founder of Claro Advisors, said in a note, “The central concern facing investors at the moment is whether or not the Federal Reserve will be able to control inflation without creating a recession.”
“Investors should be accustomed to the significant downside and upward movement of the stock, which is common in times of extreme uncertainty.”
Goldman Sachs strategists predict a 35% chance of the US economy entering recession in the next two years, while the Wells Fargo Investment Institute expects a mild US recession in late 2022 and early 2023.
The Labor Department report found that weekly unemployment claims rose unexpectedly last week, while a separate data from the Philadelphia Fed showed that its business condition index fell to 2.6 in April from 17.6 in May.
At 10:08 am ET, the Dow Jones Industrial Average is down 0.89% at 31,211.38 and the S&P 500 is down 0.42% at 3,907.16.
The Nasdaq Composite, however, rose 0.26% to 11,447.30, boosted by gains in shares of Megacap Tech and Alphabet Inc., Microsoft Corporation and Amazon.com.
The CBOE Volatility Index, also known as the Wall Street Fear Measure, rose to 31.57 points, its highest since May 12.
Canada Goose Holdings Inc. jumped 5.3% when it forecast strong annual earnings, driven by strong demand for its luxurious parcas and jackets.
The number of advances on the NYSE is declining for the 1.23-to-1 ratio. Progress issues have outperformed the decliners in Nasdaq by a 1.08-to-1 ratio.
The S&P index hit a new 52-week high and 42 new lows, while Nasdaq recorded four new highs and 257 new lows.