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The share market gave up almost three days of gains after renewed inflation worries triggered Wall Street’s worst sell-off since 2020.

The S&P/ASX 200 tumbled 102 points or 1.42 per cent by mid-session.

Ten of 11 sectors declined. The reversal pushed the benchmark briefly into negative territory for the week before a tentative recovery lifted the index more than 40 points off its morning low.

What’s driving the market

Retailers led a sharp retreat after weak trading updates from US giants Target and Walmart underlined the impact of rising costs on corporate profits. Market darlings Wesfarmers and JB Hi-Fi dropped more than 6 per cent as investors revised their expectations for earnings in this new era of soaring inflation and higher rates.

Target has been the latest big US retailer – covering both consumer staples and discretionaries – to trim its profits forecasts (profit margins down to 6% from 8% previously) and which has seen its share price fall 25% – the most in a single day since the 1987 ‘Black Monday’ crash, if anyone remembers,” NAB’s head of FX strategy, Ray Attrill, said.

“This got the ball rolling (downhill) in the US equity market and it was pretty much one-way traffic down for the whole of the day, with both the S&P and the NASDAQ closing near the lows.”

The S&P 500 finished at a session low with a loss of 4.04 per cent. The fall was the US benchmark’s heaviest in percentage terms since June 2020. The Dow shed a breath-taking 1,164 points or 3.57 per cent (also the biggest loss since June 2020) and the Nasdaq Composite 4.73 per cent.  

What fuelled the selling was confirmation from two of main street America’s biggest chains that rising fuel and labour costs were eating profit margins at the same time as inflation dulled consumer demand. Target reported a slowdown in discretionary purchases such as TVs, bicycles and kitchen appliances.

While inflation remains lower in Australia than across the pond, investors concluded local retailers were not immune from the same cost pressures.

Retail conglomerate Wesfarmers slumped 6.69 per cent. Supermarkets Woolworths and Coles gave up 6.18 and 3.79 per cent, respectively.

JB Hi-Fi fell 6.3 per cent, Super Retail Group 5.98 per cent and Harvey Norman 5.24 per cent. Online clothing retailer City Chic Collective shed 4.88 per cent.

The market took in its stride news the unemployment rate fell last month to its lowest since 1974. The official jobless rate ticked down to 3.9 per cent from 4 per cent in March as the economy added 4,000 jobs..

“3.9 per cent is the lowest the unemployment rate has been in the monthly survey. The last time the unemployment rate was lower than this was in August 1974, when the survey was quarterly,” Bjorn Jarvis, head of labour statistics at the ABS, said.

The selling undermined the ASX 200’s push to break a four-week losing streak. The index has fallen more than 500 points since this year’s peak in mid-April.

Going up

Aristocrat Leisure rallied 5 per cent after announcing a record half-year profit and a share buyback. Normalised net profit increased 41 per cent to $580 million. The pokie-maker will buy back up to $500 million of its shares on-market.

The defensive healthcare sector attracted inflows from other sectors. CSL gained 0.66 per cent, Ramsay Health Care 0.13 per cent and Pro Medicus 1.69 per cent. Biotech Imugene climbed 13.24 per cent.

The gold sub-sector also produced winners. Evolution Mining firmed 2.04 per cent, Northern Star 1.75 per cent and Perseus 1.53 per cent.

Further signs of insider buying helped Polynovo resist the selling. The medical device manufacturer climbed 3.64 per cent on news Chair David Williams spent another $430,361 to increase his stake in the company.

Business software-maker Reckon was the morning’s standout, rising 44.57 per cent after selling its Accountants Practice Management Group for $100 million. The majority of proceeds will be returned to shareholders via a special dividend.

Going down

Today’s trading mirrored Wall Street, where tech was a close second to the bloodletting in consumer stocks. Novonix slid 6.87 per cent, Life360 6.87 per cent and Altium 4.26 per cent.

Webjet slipped 3.11 per cent despite announcing it was profitable for the first time since the start of the pandemic. The travel agent said all of its businesses were profitable in April and continued to improve this month. Transaction values jumped 262 per cent in the second half.

Rival Flight Centre slumped 5 per cent as part of the retail sell-off. Other notable falls included IGA operator Metcash -4.68 per cent and United Malt Group -3.27 per cent.

Beach Energy confirmed acting CEO Morne Engelbrecht as its new permanent chief executive. The share price fell 3.82 per cent during a rough session for resource stocks.

Among stocks trading ex-dividend, Westpac dropped 3.91 per cent and Pendal Group 6.91 per cent.

Other markets

Asian markets tracked Wall Street lower. The Asia Dow shed 2.6 per cent, China’s Shanghai Composite 0.94 per cent, Hong Kong’s Hang Seng 3.44 per cent and Japan’s Nikkei 2.58 per cent.

US futures remained underwater. S&P 500 futures wilted 15 points or 0.38 per cent.

Oil recouped more than a third of its overnight loss. Brent crude firmed US$1.09 or 1 per cent to US$110.20 a barrel.

Gold faded US$2.60 or 0.14 per cent to US$1,813.30 an ounce.

The dollar bounced 0.2 per cent to 69.71 US cents after falling more than 1 per cent overnight.

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