US stocks opened lower on Tuesday amid concerns about surging inflation and economic growth and a cut in quarterly margin forecast by retailer Target.
The Dow Jones Industrial Average was down 0.64%, the S&P 500 0.62% and Nasdaq 0.88%. Investors were digesting a bigger-than-expected 50 basis point rate hike by the Reserve Bank of Australia to 0.85% as it looked to curb inflation. Analysts had been expecting a 25 bps hike.
“The move has just poured a bit of cold water on yesterday’s risk-on mood, which had already cooled somewhat following the rise in US bond yields last night as the 10-year Treasury climbed back above 3% to its highest level in a month,” said Neil Wilson, chief market analyst at Markets.com.
“Whether higher bond yields have as much of a marginal impact on equities as they did a few weeks ago is up for debate – the market has seen 3% already and come back to it.
“We know rates are rising near-term so the question is one of whether the stock market has adjusted to this yet. On that front, the real uncertainty lies in earnings and whether inflation has peaked – US CPI later this week is important on that front.”
Ahead of Friday’s May consumer prices release, investors will be monitoring Treasury Secretary Janet Yellen testimony before a Senate panel on Tuesday and a House panel a day later.
On the corporate front, Kohl’s shares surged 10% as it confirmed it is in exclusive negotiations with retail holding company Franchise Group about a possible takeover that would value the US department store chain at around $8bn.
Target said it would have to offer deeper discounts and cut back on stocking discretionary items, as inflation hits spending. It anticipated an operating margin rate of 2% for the second quarter – lower than the outlook it gave less than three weeks ago when it reported a wider-than-expected fiscal first-quarter earnings miss, which sent the stock down by a quarter.
