Market Snapshot: Dow climbs more than 250 points as U.S. stocks close higher, shaking off Target’s profit warning

What drove markets?

The stock market ended higher after flipping between gains and losses in the wake of a profit warning from retailer Target Corp. ahead of the opening bell.

“The market is still trying to digest this tug of war” between inflation and the prospect of recession, said Don Calcagni, chief investment officer at Mercer Advisors, by phone Tuesday. “The shoe has yet to drop with respect to earnings.”

Target
TGT,
-2.31%
announced on Tuesday morning a plan to reduce its excess inventory and revised lower its operating-margin guidance. The plan includes markdowns, canceling orders and removing inventory, along with price hikes to offset higher fuel and transportation costs, and supply chain adjustments such as increased holding capacity near U.S. ports.

Read: Retailers hit with ‘double-whammy’ as inventories rise, consumer sector stocks punished in May

Shares of Target closed 2.3% lower Tuesday and have plunged 42% from their 52-week high, FactSet data show. Disappointing results from Target on May 18 sent stock indexes skidding, highlighting fears that surging inflation was beginning to cut into corporate earnings.

Consumer discretionary
SP500.25,
-0.37%
was the sole sector in the S&P 500 that closed lower Tuesday, with Etsy Inc.
ETSY,
-2.80%
and Target showing the biggest losses.

Several large retailers have delivered mixed earnings and outlooks in the latest quarterly reporting period, pressuring stock prices. Investors are trying to determine whether their results suggest the start of a potential recession, or just a shift in consumers spending to services from goods in the economic recovery from the pandemic.

See: Target’s steps to reduce inventory glut are correct but are a few weeks late, analyst says

Choppy trade in the stock market also came as the yield on the 10-year Treasury note
TMUBMUSD10Y,
2.982%
hovered around 3%, a level that seems to make investors jittery. The 10-year yield fell 6.8 basis points Tuesday to 2.969%, according to Dow Jones Market Data.

In One Chart: Why stock-market investors get ‘squirrelly’ when bond yields top 3%

Meanwhile, May’s inflation data, as measured by the consumer-price index, will be released Friday. Investors will be watching for potential signs that persistently high inflation may be easing.

“I think we’re on the backside of the pig passing through the python,” said David Waddell, chief executive officer and chief investment strategist at Waddell & Associates, in a phone interview Tuesday. Some “price pressures are starting to cool,” he said, adding that he expects the U.S. economy can achieve a “soft landing” as soaring inflation declines.

In a paper published Monday, former U.S. Treasury Secretary Larry Summers argued there will be need for Volcker-style aggressiveness at the Federal Reserve to tame inflation. Former Fed Chairman Paul Volcker raised interest rates sharply to quell surging inflation, with the economy tipping into an early recession in the early 1980s.

“Many are interpreting this finding as implying that the task facing Powell is almost as severe as the task that faced Volcker, that a similar amount of hawkish restraint — relative to today’s neutral policy setting — might be required to do so, and that this would almost certainly end in recession,” said Krishna Guha, vice chairman at Evercore ISI. Guha said his opinion is that Powell’s task is not as difficult as Volcker’s in the 1980s.

Meanwhile, the World Bank sharply downgraded its outlook for the global economy, pointing to Russia’s war against Ukraine, the prospect of widespread food shortages and concerns about the potential return of “stagflation” — a toxic mix of high inflation and sluggish growth unseen for more than four decades.

Which companies were in focus?

• Kohl’s Corp.
  KSS,
  +9.54%
  stock jumped 9.5% after The Wall Street Journal reported that Franchise Group FRG is in talks to buy the department store operator for roughly $8 billion.

• Shares of Goodyear Tire & Rubber Co.
  GT,
  -0.37%
  slipped 0.4% after issuing a safety recall of more than 173,000 tires due to a defect that has led to crashes resulting in deaths and injuries. The tire maker initially declined a request for a recall.

• Shares of Apple
  AAPL,
  +1.76%
  gained 1.8% after revamping its MacBook Air and MacBook Pro laptops Monday while previewing new software features that will let people customize their iPhone screens more.

How did other assets fare?

• The ICE U.S. Dollar Index
  DXY,
  -0.10%,
  a measure of the currency against a basket of six major rivals, edged down 0.1%.

• Oil futures
  CL.1,
  +0.06%
  rose, with West Texas Intermediate crude for July delivery
  CLN22,
  +0.06%
  settling 0.8% higher at a nearly three-month high of $119.41 a barrel. Gold futures
  GC00,
  +0.16%
  rose 0.5% to settle at $1,852.10 an ounce.

• Bitcoin
  BTCUSD,
  -0.99%
  was down 0.8% at $31,185.

• In European equities, the Stoxx Europe 600
  SXXP,
  -0.28%
  closed 0.3% lower, while London’s FTSE 100
  UKX,
  -0.12%
  slipped 0.1%.

• In Asia, the Shanghai Composite
  COMP,
  +0.94%
  edged up 0.2%, while the Hang Seng Index
  HSI,
  -0.56%
  fell 0.6% in Hong Kong and Japan’s Nikkei 225
  NIK,
  +0.10%
  ticked up 0.1%.

—Steve Goldstein contributed to this report.