Stocks set to test lows, driven by mounting worries about the economy and corporate profits

Published Wed, May 18 20225:33 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

New worries about the consumer and economy snuffed out the market's spring rally and sent stocks on a course back toward recent lows -- or even lower. Target was the l atest to deliver bad news with an earnings miss Wednesday , following Walmart's disappointing earnings Tuesday . Target plunged nearly 25%; Walmart lost another 6.8% and most of the retail sector was deep in the red as investors worried that the consumer is weakening. The Dow Jones Industrials fell more than 1,100 points, or 3.6%. The Nasdaq lost 4.7%, and the S & P 500 tumbled 4% to 3,924. CFRA chief investment strategist Sam Stovall said the S & P 500 could fall through 3,859, the low from last Thursday, and test a bigger support level at 3,819. "The real question is will we end up going lower? Do we blow right past that and 3,500 is the next target on the S & P 500?" Strategists had expected a reprieve from the selling that has whipped the market since March. After a washout last Thursday, the highly oversold market was expected to press higher for the next several weeks. But the sell-off Wednesday crushed that nascent rally, and the news from the retail sector now has investors rethinking the earnings outlook for many companies. "The fact that it's Walmart and Target...I'm amazed that Target was a large cap trading down" as much as 28% at one point Wednesday, said Steven DeSanctis, Jefferies equity strategist. "You really don't know where the end is in sight. You don't know where they should trade down to. It's foolhardy to say the low is in and it's not...whatever you think the valuations are, you have to take down the earnings numbers." Consumer sectors led Wednesday's losses with a 6.8% decline in consumer discretionary stocks and a 6.4% drop in consumer staples names. Selling has overtaken even "those companies that typically hold up well during recessions - Dollar General, Target, Kroger, Walmart," said Stovall. "And that's why consumer staples are doing poorly...Walmart gets most of its revenue from food." Katie Stockton, technical strategist and founder of Fairlead Strategies, said the market could continue lower but, technically, it continues to flash signs of being oversold and there could be a bounce higher. She said it's possible her target of 3,815 on the S & P could be tested first. "All eyes are on the mega caps again," Stockton said. "This is the real change in the character of the market, where we're seeing big unpredictable down days like this out of the mega caps, especially Apple, which had outperformed. I think it is shaking market sentiment." Apple lost 5.6% Wednesday to close at $140.82. Stockton said that, like the S & P 500, the Apple price chart is signaling that it's oversold and could bounce. But the sell-off itself could go further before a bounce. "It just shows it's a reflection of market sentiment being very skittish and bearish," she said.