Dow extends losses as stagflation fears rise, retailers struggle

The Dow tanked again on Thursday — a day after the blue-chip index plunged more than 1,100 points — as investors got rattled by a raft of weak corporate earnings reports and mounting fears that stagflation will take hold in the US economy.

The Dow Jones Industrial Average slid 236.94 points, or 0.8%, to 31,253.13 . The tech-heavy Nasdaq index was down 29.65 points, or 0.3%, while the broad-based S&P 500 fell about 22.89 points, or 0.6%.

Inflation weighed heavily on earnings from major retailers in recent days. The trend continued on Thursday morning, when Kohl’s shares sank more than 2% after the firm slashed its full-year profit forecast. But shares later recovered and gained 4.4%

A day earlier, Target shares saw their worst day since the crash of 1987 after the big-box retail giant noted that inflationary costs such as fuel and shipping were cutting into its profits. Walmart also provided a muted profit outlook.

The rough start followed a rout for stocks on Wednesday, when the Dow suffered its worst trading day since the early pandemic days of 2020. The Nasdaq fell nearly 5% and has already entered a bear market – defined as a 20% decline from a recent high – while the S&P 500 is approaching bear market territory.

The stock market is likely to “remain in purgatory until the Federal Reserve smothers the inflationary wildfire,” according to Ryan Belanger, the managing principal and founder of Claro Advisors in Boston.

“The central worry facing investors right now is how the Federal Reserve will or will not be able to tame inflation without causing a recession,” Belanger said. “The outcome of the Fed’s actions is totally unpredictable, which is why markets are so volatile.”

Investors are increasingly skeptical regarding the Federal Reserve’s ability to engineer a “soft landing” for the economy without prompting a recession. Those fears have fed concerns about stagflation, where economic growth slows while inflation remains persistently high.

Famed Allianz economist Mohamed El-Erian sounded the alarm earlier this week, noting his view that stagflation is now “unavoidable” and that the likelihood of a recession has increased.

The number of Americans filing jobless claims jumped 21,000 to 268,000 on Thursday – marking the third straight week of increases. However, claims remain near historic lows.

Surging oil prices have contributed to steeper costs at the pump for American motorists. Gas prices hit another record high on Thursday, with the national average cost of a gallon hitting $4.589.

In New York, the statewide average is approaching nearly $5 per gallon.