US consumer stock rout wipes out $500bn in market value and stirs more worries

The wild swings in consumer stocks this week that erased about $500 billion in market value are far from over, with earnings reports from retailers including Dollar General, Macy’s and Costco Wholesale to come.

Volatility in consumer stocks reached levels not seen since the early days of the coronavirus pandemic-driven rout as retailers from Walmart to Target cut their annual profit forecasts and stoked concern about the impact of rising inflation and the challenge to pass on higher costs to consumers.

Walmart and Target each posted their biggest one-day declines since 1987 after their results, with sell-offs of 19 per cent and 29 per cent respectively this week.

Given Walmart’s drop, Procter & Gamble has overtaken the retailer as the biggest company in the S&P 500 Consumer Staples Index by market value.

Ross Stores was the latest to trim its forecasts for comparable sales and profit, fuelling its biggest decline on record in data going back to 1985.

“The implications for retailers that have yet to report are not promising,” said John Zolidis, president of Quo Vadis Capital, after Walmart and Target’s bleak updates.

Several brokerage firms, including Truist Securities and Oppenheimer, have trimmed profit expectations for retailers that have yet to release quarterly results, including Dollar General and Costco.

Gap, which will report earnings after markets close on May 26, warned investors last month, slashing its quarterly sales outlook on “macroeconomic dynamics” and execution challenges at its Old Navy brand.

Macy’s, which will report first-quarter results before the bell on May 26, is down 31 per cent this year, after more than doubling in 2021 with the company benefiting from pent-up demand as consumer mobility resumed.

Shares are likely to be volatile after earnings, with an implied one-day move of 14 per cent, according to data compiled by Bloomberg.

Dollar General also reports earnings on May 26. Its stock is expected to move more than 8 per cent in either direction after it releases results, data compiled by Bloomberg showed.

That is bigger than the moves seen after the past eight quarterly reports were issued. Dollar General has declined 20 per cent this year.

All eyes are on Costco after peer BJ’s Wholesale Club Holdings bucked the trend this week and reported earnings and sales that grew in the quarter.

As one of a few retailers that still reports monthly sales, the company’s April net sales increased 14 per cent year-over-year after climbing 18.7 per cent in March.

Costco, which is scheduled to report after the bell on May 26, has slumped 27 per cent this year.