The evidence of red-hot inflation seeping into the economy is sending a chill through investors after major US retailers showed people are cutting back on buying bigger ticket items as they just try and get by.
Investors wiped almost 25% off Target shares on Wednesday after its profit halved as it had to discount bigger items, and Walmart has dropped more than 17% since it reported weak results early on Tuesday.
Target's earnings showed consumers spending more on food and household essentials instead of high-margin discretionary items while Walmart showed shoppers moved to buy lower-margin basics.
Investors will on Thursday be focused on earnings due from Kohl's, which fell 11% on Wednesday and BJ's Wholesale Club, which fell 16%.
The turmoil came a day after Federal Reserve Chair Jerome Powell pledged the US central bank would ratchet interest rates as high as needed to kill a surge in inflation.
"Retailers are starting to reveal the impact of eroding consumer purchasing power," said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, on the same day his firm forecast a mild recession around year-end into early 2023.