By Amruta Khandekar and Ankika Biswas
(Reuters) - The S&P 500 and Nasdaq fell on Wednesday as Target 's dour sales forecast due to changing shopping pattern amid rising prices unleashed fresh worries for retailers heading into the crucial holiday season.
Target Corp (NYSE:TGT) tumbled as much as 16.9% as a pullback in consumer spending despite heavy discounting also hurt its third-quarter profit, which missed market expectations.
Its bleak forecast jolted the retail sector, with shares of Macy's Inc (NYSE:M), Best Buy Co Inc (NYSE:BBY) and Dollar Tree Inc (NASDAQ:DLTR) dropping between 1.4% and 6.0%.
"It's showing that there's some weakness in the economy with the consumer. We are a consumption-based economy, so you never want to see that," said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
Despite the sales warning from Target, latest data on U.S. retail sales suggested that consumer spending remained stable and could help to underpin the economy in the fourth quarter.
The data showed retail sales rose 1.3% last month led by motor vehicles after remaining flat in September. Economists polled by Reuters had forecast sales accelerating 1%.
"When you see a beat like this, it suggests that the Fed might interpret it as they need to do more as far as rate hikes, perhaps going a bit higher than what we had originally penciled in," said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
The data and earnings reports come on the heels of upbeat quarterly results from Walmart (NYSE:WMT) Inc on Tuesday that had added to market optimism driven by a softer-than-expected producer prices report.
All the three main indexes ended higher in the previous session as geopolitical worries were overshadowed by expectations that the improved inflation outlook would allow the U.S. Federal Reserve to shift to smaller interest rate hikes.
Traders are now pricing in 89% odds of a 50 basis point rate hike at the Fed's meeting in December even as policymakers emphasized this week that they intend to keep raising interest rates for now, perhaps at a slower pace.
At 10:14 a.m. ET, the Dow Jones Industrial Average was up 13.63 points, or 0.04%, at 33,606.55, the S&P 500 was down 21.80 points, or 0.55%, at 3,969.93, and the Nasdaq Composite was down 150.15 points, or 1.32%, at 11,208.26.
Among S&P 500 sectors, retail and consumer discretionary were down 1.9% and 1.7%, respectively.
Among other stocks, home improvement retailer Lowe's Companies Inc (NYSE:LOW) jumped 4.3% after increasing its annual profit forecast on steady demand.
Chipmaker Micron Technology Inc (NASDAQ:MU) slipped 4.8% after cutting its 2023 forecast for supply of its memory chips, while U.S.-listed shares of Grab Holdings Ltd jumped 4.2% after the ride-hailing and food delivery firm bumped up its 2022 revenue forecast.
Declining issues outnumbered advancers for a 2.10-to-1 ratio on the NYSE and for a 2.41-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week high and two new lows, while the Nasdaq recorded 33 new highs and 56 new lows.