S&P 500 closes lower after Target’s warning drags on retail stocks, Nasdaq falls 1.5%

Stocks fell on Wednesday as investors weighed a gloomy holiday quarter update from Target that pressured retail stocks.

The S&P 500 ended the day down 0.8% at 3,958.85 and the Nasdaq Composite shed 1.5% to 11,183.66. The Dow Jones Industrial Average wrestled with the flat line all day, but finished down 36.32 points, or 0.1% at 33,556.60.

Those moves came after Target reported a decline in sales as families deal with high inflation heading into the biggest shopping season of the year for retailers. The warning weighed on stocks, sending Target down more than 13% and on pace for its worst day since May. Macy’s, Nordstrom, Kohl’s and Gap were also down big.

“A volatile earnings season for retail is forcing investors to be picky and particular on their retail exposure as the gap between big box retail and specialty retail continues to widen,” said founder and CEO of KKM Financial.

Brian Levitt, Global Market Strategist at Invesco, called it a mixed picture, noting that retail data released earlier in the day was at odds with the Target warning.

“Retail sales data suggested consumers are willing to spend, particularly on big topic items while the retail bellwether Target warned of a weaker holiday season,” he said. “The latter is more in line with our expectations. Tighter monetary policy is designed to make people feel less wealthy. The idea is to slow consumption, allowing inflation to moderate. Ironically that will also set the stage for a recovery. “

Stocks have staged a solid run following last week’s better-than-feared consumer price index report. The S&P 500 last week posted its best weekly stretch since June and all the major averages are on track to finish the month with gains.

Some investors say a near-term retreat is on the horizon, however.

“In the short term, the market is very extended and overdue to pull back and digest the recent rally,” said Adam Sarhan, CEO of 50 Park Investments.