US equities tumbled on Wednesday as they suffered their worst day since the early months of the pandemic in June 2020. The benchmark S&P500 fell 4% with 98% of stocks declining.

The tech-heavy Nasdaq tumbled 5% and the Dow lost 3.5%, closing at its lowest level since March 2021. Weak results from consumer bellwethers stoked concerns about the impact of inflation and choked-up supply chains on corporate earnings. This has seen spillover selling in Asian stocks which are lower this morning. US futures are mixed, having been in the green earlier in the session.

US retailers on fire sale

Disappointing retail earnings were being blamed for yesterday’s massive selloff. Target led the declines, tumbling 25%, the largest one-day fall since the Black Monday crash back in October 1987. It said higher freight, wage and fuel costs and disrupted logistics would hurt its profit margins. This warning came a day after Walmart, the world’s biggest bricks-and-mortar retailer, cut its earnings guidance. The company said it had been wrongfooted by broad inflationary trends.

Share price reactions have been particularly severe by the standards of typically less volatile consumer staple stocks. Walmart especially, is long regarded as a leading gauge of the American consumer. Its worrying commentary comes at a time when investors are scrambling to measure the impact of inflation, rising interest rates and supply chains issues across the global economy.  It seems that currently, we are seeing a revaluation in retailers which is cancelling out the excesses driven by the pandemic and several years of outperformance.

Dow breaks down to new closing low

Technically, the Dow has been in a downward bear channel since topping out nearly a month ago near 35,500. Volatility has been high, but the path has been for lower prices. More recently the widely followed index had been trading around trendline support from the June low of last year, around 32,000. The February low sits just above here at 32,272.

Yesterday’s decline took the index to its lowest close since March last year. Next support is this month’s bottom at 31,228. The 200-week simple moving average is 29,193. If the market can find some buyers, initial resistance sits around 32,000 and 32,272. This week’s high is 32,689.

Safe havens prosper in FX

The dollar made a recovery yesterday, bouncing back from a three-day losing streak. The greenback generally has an inverse correlation to global growth and risk sentiment, prospering when economic activity weakens. Other classic safe haven currencies like the Japanese yen and the Swiss franc also appreciated sharply.

The euro failed to derive support from ECB officials repeating their summer guidance for rate hikes, while GBP fell on marginally sub-forecast CPI and remains below 1.24 this morning. EUR/GBP was firmer but could not reach 0.85.