Schwab Market Update: Stocks Lower as Volatility Continues

U.S. equities are lower as the recent volatility continues despite yesterday's gains. Markets remain wary of persistent inflation, and investors are looking ahead to Friday's read on CPI in hopes for signs inflation may have already peaked. The Fed's recent aggressive tightening moves have caused uneasiness about a slowdown in the economy and possible recession. In addition, markets continue to grapple with the ongoing war in Ukraine. Target is in focus today after lowering its Q2 margin guidance due to a planned reduction in inventory. Meanwhile, Dave & Buster's beat on both earnings and revenue forecasts. In economic news, the trade balance shrunk more than expected, and we will get a read on consumer credit in the final hour of trading. Treasuries are mixed as the curve is flattening slightly. The U.S. dollar is higher, crude oil is losing some ground, and gold is ticking higher. Europe is lower after the U.K. Prime Minister survived a vote of confidence Monday evening. Asia finished mixed following a larger-than-expected rate hike from the Reserve Bank of Australia.

As of 8:55 a.m. ET, the June S&P 500 Index future is 39 points below fair value, the DJIA future is 250 points under fair value, and the Nasdaq Index future is 165 points south of fair value. WTI crude oil is trading $0.24 lower to $118.26 per barrel and Brent crude oil is decreasing $0.26 to $119.25 per barrel. The gold spot price is increasing $2.60 to $1,846.30 per ounce. Elsewhere, the Dollar Index is 0.3% higher to 102.71.

Target Corporation (TGT $160) issued updated guidance for Q2 of a lower operating margin of 2% versus previous guidance centered around Q1's margin of 5.3% as it plans to take action to better manage its inventory. The retailer intends to get rid of unwanted inventory through additional markdowns, removing excess inventory, and canceling orders, hoping to clear room for other merchandise including groceries and back-to-school supplies. Target reaffirmed its full-year revenue growth in the low- to mid-single digit range and said it expects margins to recover in the second half of the year, expecting around 6%.

Dave & Buster's Entertainment Inc (PLAY $37) reported adjusted Q1 earnings-per-share (EPS) of $1.35, above the $1.16 FactSet estimate, as revenues rose 70.0% year-over-year (y/y) to $451.1 million, north of the Street's forecast of $440.6 million. Revenues were up 24.1% compared to the first quarter of 2019, and comparable sales were up 10.9% compared to Q1 2019. The company mentioned that it is benefiting from a higher mix of amusements and a leaner operating model, and it has been able to offset inflationary costs with a more efficient labor model and thoughtful pricing actions.

The S&P 500 volatility has continued this week, getting only a one-week reprieve after seven-straight weeks of declines earlier this quarter that have come as investors continue to grapple with the ultimate implications of persisting inflation pressures and expectations of an aggressive Fed monetary policy tightening campaign. Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest Mid-Year Outlook: U.S. Stocks and Economy, how sharp, countertrend rallies may continue this year, but aggressive Fed policy, the turning of the liquidity tide, and slower economic growth will likely keep pressure on stocks.