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Business

Target Shares Plunge on Earnings Miss and Weak Holiday Sales Forecast

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Target Corp.

TGT -13.14%

said consumers pulled back on their spending in recent weeks, sapping sales and profits in the latest quarter and putting a cloud over its holiday season.

Quarterly profits came in below Target’s forecasts and the company’s sales growth lagged behind larger rival

Walmart Inc.

WMT 0.72%

in the period. Target executives lowered their financial goals for the holiday quarter and said they are prepared to offer deep discounts in the coming months to clear out unwanted inventory and attract shoppers.

Target shares dropped 13% in Wednesday trading on the earnings, which came in well below Wall Street’s estimates. It is the second time this year the retailer has misjudged consumer demand—in the spring executives said they were surprised by shifts away from furniture and appliances.

Government data released Wednesday showed that retail spending, including purchases at restaurants, car dealers and gas stations, rose 1.3% in October from September. The data aren’t adjusted for inflation and the government earlier reported that consumer prices rose 7.7% in October from a year earlier.

Target executives said that sales worsened sharply in October and November with guests’ shopping behaviors increasingly affected by inflation, rising interest rates and economic uncertainty.

“Clearly it’s an environment where consumers have been stressed,” said Target Chief Executive

Brian Cornell

on a call with reporters. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions.”

Target executives said consumers are waiting to purchase items until they spot a deal, buying smaller pack sizes and giving priority to family needs. Sales of food, beverage, beauty products and seasonal items were strong, they said.

Retailers are facing an uncertain holiday season with high food and gas prices pinching some households. Target, like many of its peers, has been discounting to try to clear out a glut of goods this summer. Target’s inventory rose 14.4% in the October quarter from a year ago, while its revenue rose 3.4%. Quarterly net income tumbled by half.

“We are committed to being clean at the end of the holiday season,” regarding excess inventory, said Target Chief Financial Officer

Michael Fiddelke,

on a call with analysts Wednesday. If consumer trends of recent weeks persist, “it will come with more markdowns to make sure we accomplish exactly that goal.”

Rival TJX Cos. reported mixed quarterly results on Wednesday, with lower sales and higher profit margins. The off-price retailer said its U.S. comparable-store sales declined 2% in the quarter, as gains in its Marshalls and T.J. Maxx apparel chains were offset by a drop in its HomeGoods chain.

TJX said it was comfortable with its inventory levels heading into the holidays and said it now expected U.S. comparable-store sales to be flat or up 1% from a year ago.

Walmart gets over half of its U.S. revenue from groceries, while Target’s business is more skewed toward discretionary categories such as home goods, apparel, electronics and beauty products. As consumers absorb higher prices, many are pulling back spending where they can.

Consumer spending has held up relatively well so far despite inflation, but experts say we’re approaching an inflection point. WSJ’s Sharon Terlep explains the role “elasticity” plays in a company’s decision on whether to raise prices. Photo illustration: Adele Morgan

For the most recent quarter, Target said comparable sales, those from stores and digital channels operating at least 12 months, rose 2.7% in the quarter ended Oct. 29 compared with the same period last year.

On Tuesday Walmart said U.S. comparable sales rose 8.2% in the quarter. Walmart executives said the retailer is attracting more higher-income shoppers as many shift spending away from discretionary categories to food and look for value.

Target said it is gaining market share in its five main categories, even as consumers pull back spending in some cases. Existing shoppers are buying more and visiting more frequently, said Christina Hennington, Target’s chief growth officer. Traffic to stores increased 1.4% in the most recent quarter.

This year Target expects a hit to its gross margin of around $600 million due to shrink, the industry term for theft and other product loss, said Mr. Fiddelke. “We’ve seen that trend has grown over the course of the year,” he said.

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Target, which surprised investors by slashing its forecasts twice in the spring, on Wednesday reduced its sales and profits expectations for its fiscal year, which ends in January.

“We expect the challenging environment to linger on beyond the holiday,” said Mr. Fiddelke.

The company now expects a low-single-digit percentage decline in comparable sales and an operating margin around 3% for the fourth quarter. In August Target said sales would grow in the low- to mid-single-digit percentage range for the full year and operating margin would be around 6% for the second half of the year.

Target executives said they would look to cut at least $2 billion in costs over three years. Executives said the company isn’t planning major layoffs or hiring freezes as part of the new cost-cutting program, but streamlining processes inside the company.

—Suzanne Kapner contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

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Business

Target’s Profit Sinks as Retailer Unloads Unwanted Inventory

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A glut of inventory sank profit at

Target Corp.

further than it expected, sparking investor concerns about the company’s response to an oversupply problem haunting retailers from

Walmart Inc.

to the parent of T.J. Maxx.

Like many other retailers, Target didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, shifted more spending to travel and cut back on patio furniture, small electronics and other items that were in high demand for much of the Covid-19 pandemic. Target took a more aggressive approach than some of its competitors, slashing prices and canceling orders to clear out the glut as quickly as possible.

The decision to quickly move through excess inventory “had a meaningful short-term impact on our financial results,” Target Chief Executive

Brian Cornell

said on a call with reporters. He said the company didn’t want to deal with excess inventory for years, potentially degrading the customer and worker experience.

“Today the vast majority of the financial impact of these inventory actions is now behind us,” he said. In the current quarter the company expects a roughly $200 million impact from its effort to reduce inventory, Chief Financial Officer

Michael Fiddelke

said on a conference call Wednesday. The company expects operating margin to rise to 6% in the second half of the year.

About 75% of the U.S. population can find a Target store within a 10-mile radius. WSJ’s Sarah Nassauer explains how the retailer leverages its physical stores to expand services such as in-store pickup and same-day shipping. Photo Illustration: Ryan Trefes

Target shares were off 2.6% at $175.46 at midday Wednesday.

T.J. Maxx parent

TJX

TJX 4.43%

Cos. said Wednesday that inventory rose 39% in the most recent quarter, while sales fell 1.9%. The company said it is comfortable with its inventory levels and that lower gasoline prices could boost consumer spending for its goods.

Large retail chains including Walmart and

Home Depot Inc.

have reported higher sales for the most recent quarter driven by consumers’ willingness to absorb price increases. The results so far indicate Americans continue to spend even as they shift purchases away from nonfood items to offset the effects of inflation.

Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July as gasoline prices fell, compared with an increase of 0.8% in June, the Commerce Department said Wednesday. Stripping out gasoline and auto sales, retail sales rose 0.7% in July.

Walmart, like Target, has discounted goods to pare excess inventory. Those efforts ate into last quarter’s profit and will continue in the current quarter, executives said Tuesday.

Target executives said traffic gains and the overall spending strength among its core shoppers are evidence that the retailer can put the inventory issues behind it. The retailer believes it is gaining market share by unit sales in all major categories, executives said. Target shoppers are buying fewer discretionary items as prices rise, but “we’ve got a guest that is still out shopping,” Mr. Cornell said.

Target’s inventory challenge rippled through its business over the past quarter, company executives said on a call with analysts Wednesday. In June inventory in Target’s warehouse network peaked at more than 90% of capacity, before dropping to below 80% by the end of the period, Chief Operating Officer

John Mulligan

said. The company aims to keep capacity at or below 85% to reduce cost and operational difficulties, he said.

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How has your shopping at Target changed over the past year? Join the conversation below.

To dispose of the excess inventory Target offered discounts, canceled orders and adjusted how it ordered products for the second half of the year, favoring items such as food that shoppers are now buying more of, executives said on the call. Target used store space typically reserved for seasonal goods to highlight deals, stopped selling outdoor products earlier than usual and brought in back-to-school items ahead of schedule. The company canceled $1.5 billion in fall discretionary product orders, executives said.

The company continues to import goods earlier than it did before the pandemic to make sure seasonal merchandise arrives on time, but believes supply-chain snarls have peaked, Mr. Mulligan said. Target’s inventory rose nearly 10% in the second quarter to $15.3 billion as the retailer prepares for fall and holiday shopping, he said.

Target’s net earnings were $183 million, compared with $1.8 billion during the same period last year.

The company’s revenue rose, boosted by strong sales of food-and-beverage, beauty and household items as well as more shopper visits. Comparable sales, those from stores and digital channels operating at least 12 months, rose 2.6% in the quarter compared with the same period last year. Shopper traffic increased 2.7% in the quarter. Shoppers spent slightly more for fewer items per transaction during the quarter.

Home Depot said Tuesday that its sales rose, in part because of higher prices, while traffic fell in the most recent quarter. Walmart said its sales rose, also helped by higher prices, and traffic increased 1% in the quarter.

Target revenue rose 3.5% during the quarter to $26 billion. It maintained previous estimates for the full year of revenue growth in the low- to mid-single-digit percentage range.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

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Business

U.S. Inflation Hits New Four-Decade High of 9.1%

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U.S. consumer inflation accelerated to 9.1% in June, a pace not seen in more than four decades, adding pressure on the Federal Reserve to act more aggressively to slow rapid price increases throughout the economy.

The consumer-price index’s advance for the 12 months ended in June was the fastest pace since November 1981, the Labor Department said on Wednesday. A big jump in gasoline prices—up 11.2% from the previous month and nearly 60% from a year earlier—drove much of the increase, while shelter and food prices were also major contributors.

The June inflation reading exceeded May’s 8.6% rate, prompting investors and analysts to debate whether the Fed would consider a one-percentage-point rate increase, rather than a 0.75-point rise, later this month. Slowing demand is key to the Fed’s goal of restoring price stability in an economy that is still struggling with supply issues, but raising interest rates also elevates the risk of a recession.

Core prices, which exclude volatile food and energy components, increased by 5.9% in June from a year earlier, slightly less than May’s 6.0% gain, the Labor Department said.

As inflation climbs in the U.S., rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. WSJ’s Gwynn Guilford explains how the consumer-price index works and what it can tell you about inflation. Illustration: Jacob Reynolds

On a month-to-month basis, core prices rose 0.7% in June, a bit more than their 0.6% increase in May—a sign of inflationary pressures throughout the economy.

“Inflation makes everything difficult,” said

Lara Rhame,

chief U.S. economist for FS Investments. “It erodes your savings, your wages, your profits. It’s punishing everybody.”

Stocks declined on Wednesday after wavering for much of the day, with the S&P 500 index falling by 0.5%. Bond yields jumped following the inflation report, but yields on longer-term Treasurys quickly gave up those gains.

Despite June’s inflation reading, economists point to recent developments that could subdue price pressures in the coming months.

Investor expectations of slowing economic growth world-wide have led to a decline in commodity prices in recent weeks, including for oil, copper, wheat and corn, after those prices rose sharply following the Russian invasion of Ukraine. Retailers have warned of the need to discount goods, especially apparel and home goods, that are out of sync with customer preferences as spending shifts to services and away from goods, and consumers spend down elevated savings.

“There’s a pretty serious recession fear affecting a broad range of asset prices,” said

Laura Rosner-Warburton,

senior economist at MacroPolicy Perspectives.

Retailers’ ability to shed unwanted inventory could test whether pricing is returning to prepandemic patterns, Ms. Rosner-Warburton said. Some retailers, such as Target, have already said they are planning big discounts. Others with robust warehouse capacity, such as Walmart Inc., could be more likely to hold on to their excess inventory, analysts say.

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“It would be really important if we do see discounting return, because it would show that we weren’t that far away from the pre-Covid environment in terms of pricing behavior,” Ms. Rosner-Warburton said.

Discounts haven’t shown up prominently in inflation figures so far: Prices for apparel and home goods both rose last month. New and used car price increases, a significant source of upward pressure on inflation, both eased on a month-to-month basis in June.

The Fed last month raised its interest-rate target by 0.75 percentage point, the largest increase since 1994. Besides tempering demand, the central bank is trying to prevent consumer expectations of higher inflation from becoming entrenched, as such expectations can be self-fulfilling. Fed Chairman

Jerome Powell

has said the central bank wants to see clear evidence that price pressures are diminishing before slowing or suspending rate increases.

Persistent high inflation is putting a strain on businesses and consumers who, after decades of price stability, aren’t used to it.

Dan Waag,

55 years old, the owner of Arlene’s Sunny Side Cafe in Alcester, S.D., made the difficult decision to close for a week after concluding that a drop in the number of customers was leaving the restaurant’s finances in the red.

“I know these are tough times with this inflation, little to no rain for the farmers, gas prices as high as they are,” he wrote to his customers on Facebook.

Mr. Waag attributes the slowing demand to a poor season for the corn and bean farmers in the area, and the added toll of higher gasoline prices that might make an outing to his restaurant an unaffordable luxury. He hasn’t changed his prices yet, but with his own rising costs and a drop in daily revenue from around $600-$700 to $300-$400, he feels he may have to soon.

High inflation and a poor farm season have driven Dan Waag to close Arlene’s Sunny Side Cafe in Alcester, S.D., for a week.



Photo:

Dan Waag

By closing for a week, he said he is betting customers will realize the value of having a non-fast food restaurant in their town of around 800 people. “I’m trying to show people, ‘This is what it will be like if I have to stay closed,’ ” Mr. Waag said.

Consumer inflation expectations have improved somewhat, according to a Federal Reserve Bank of New York survey this week. Americans expect slower inflation increases over the longer run than they had in recent months. The bank said in its June Survey of Consumer Expectations that respondents see the annual inflation rate three years from now at 3.6%, down from their expectation in May of 3.9%. The bank also said respondents expect the annual inflation rate five years from now to be 2.8%, down from their May expectation of 2.9%.

Higher interest rates won’t have the same effect on all prices simultaneously, economists say. Costs such as mortgages and rents—a big part of household budgets—respond over time to the demand-sapping effects of higher interest rates. Shelter costs rose by 0.6% in June over the prior month, the same rate as they did in May. The rent index rose 0.8% over the month, which was the largest monthly increase since April 1986.

Housing inflation is important because it represents around 40% of core CPI and around 17% of the Fed’s preferred inflation gauge, the personal-consumption expenditures price index.

“High rents are really troubling because they’re locked in once every year or once every two years, and that’s what leads people to go ask their boss for higher wages,” said Ms. Rhame.

Wages aren’t keeping up with inflation. With annual wage growth at 5.1%, average hourly earnings adjusted for inflation are declining at their fastest pace in four decades. After accounting for seasonal and inflation adjustments, average hourly earnings decreased 3.6% from June 2021 to June 2022.

Record home prices and higher mortgage rates in May made it the most expensive month since 2006 to buy a home. Those conditions are leading prospective buyers to drop out of the market for now. But with limited supply and continued demand, it may take months before housing prices see significant declines.

“We entered this year with so much more demand than supply—even with many home buyers unable to compete in the market, there’s still a lot of buyers,” said

Bill Adams,

chief economist at Comerica Bank.

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com

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Business

Stocks Trade Modestly Higher – WSJ

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U.S. stock indexes edged higher Tuesday, reversing course after a profit warning from

Target

cast a pall over the retail sector.

The S&P 500 rose 0.4%. The Nasdaq Composite ticked up 0.4%, while the Dow Jones Industrial Average increased 0.3%. 

Stocks have swung in recent days, buffeted by shifts in views about the strength of the economy and the likely path for central banks and interest rates. A big concern is that central banks could act too aggressively as they combat inflation and trigger a slowdown in economic growth, or even a recession.  

“We’re still in this constant push and pull about where inflation is going to be, where growth is going to be, and whether we’re going to be in a recession or not,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. 

Target shares dropped 3% after the retailer issued a warning that its profit would decline because it needs to cancel orders or offer discounts to clear out unwanted goods, a potential sign of lower consumer spending. Shares of other big retailers followed, with

Walmart

declining more than 2%.

A significant increase in retail inventories and diminishing demand could cause prices to moderate across most consumer goods in the second half of the year, according to Peter Essele, head of portfolio management at Commonwealth Financial Network.

“That would be a good thing for inflation overall and would help buoy markets higher as inflation continues to decline,” Mr. Essele said.

The trade gap in the U.S. for April narrowed to $87.1 billion, shrinking more than economists had forecast, after reaching a record deficit the prior month. A key release this week will be the consumer-price index on Friday, which will be closely watched for signals on whether inflation is weakening or not.  

Ayako Yoshioka, a senior portfolio manager at Wealth Enhancement Group, said year-over-year inflation is likely to peak, but the pace at which higher prices come down remains uncertain.

“As long as inflation remains elevated and continues to come down very slowly, the Fed is going to increase interest rates in order to combat these high inflation rates,” Ms. Yoshioka said. “It’s a very difficult thing for the Fed to engineer a soft landing.”

On Tuesday, the Reserve Bank of Australia lifted its key policy rate by 0.5 percentage point, more than expected. 

“The Australian central bank’s move, it’s a reminder that central banks can surprise on the upside. What does this tell us about what the Fed will do, what the ECB will do?” Mr. Kamal said. “More aggressive tightening directly equals a higher probability of a recession.”

The yield on the benchmark 10-year Treasury note eased to 2.973% from 3.037% on Monday. Yields fall when prices rise. 

“With yields at 3%, it shows that the market hasn’t decided if we’re going to have a recession or if we have one, how severe it’s going to be,” said Julien Lafargue, chief market strategist at Barclays Private Bank. “That is what you would want to own if you expect a recession.”

Traders worked on the floor of the New York Stock Exchange on Friday.



Photo:

justin lane/Shutterstock

In other corporate news,

Kohl’s

shares jumped more than 9% after The Wall Street Journal reported the department-store chain is in exclusive talks to be sold to retail holding company

Franchise Group.

The deal may value the company at about $8 billion. 

Arcade company

Dave & Buster’s Entertainment

rose 2% after reporting a jump in sales growth.

Shares of BuzzFeed climbed 6%, recovering some ground after plunging 41% on Monday after a ban that prevented executives and major investors from selling shares was lifted.

Twitter

shares rose 1% after Elon Musk threatened Monday to end his acquisition of the social-media platform, saying the company didn’t comply with requests for data about spam accounts. 

Casey’s General Stores

is slated to report after markets close.

Overseas, the pan-continental Stoxx Europe 600 slipped 0.3%. In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.2%, while Hong Kong’s Hang Seng Index declined 0.6%. Japan’s Nikkei 225 edged up 0.1%. 

The Japanese yen weakened 0.7%, reaching the lowest level against the dollar since April 2002. The yen has sold off this year as the

Bank of Japan

has remained committed to ultra-easy monetary policy, while many other central banks have begun lifting interest rates to combat rapid inflation. 

Cryptocurrencies fell, with bitcoin tumbling 4% and dropping below $30,000. Ether also declined 4%.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com

As markets react to interest-rate hikes and the threat of a recession, stocks are dropping closer to bear-market territory. WSJ’s Gunjan Banerji explains what it takes to push stocks back into a bull market and why it’s hard to predict when they’ll turn around. Illustration: Jacob Reynolds

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Business

Stocks Pull Back After Last Week’s Rally

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U.S. stocks fell on Tuesday, poised to end the month on a downbeat note after last week’s rally.

The S&P 500 was down 0.4% in afternoon trading, a day after U.S. markets were closed for Memorial Day. After snapping a seven-week losing streak last week, the benchmark index regained ground and was on track to close the month with a slight gain. The Dow Jones Industrial Average shed 0.5%, while the Nasdaq Composite fell 0.1%.

Tuesday’s session will cap another volatile trading month, during which stocks around the world swung wildly as traders tried to assess the outlook for global economies. In the U.S., stocks tumbled shortly after May began and continued falling amid a slew of earnings and economic data that came in worse than expected. 

Throughout the month, profit warnings from companies ranging from

Snap

to

Target

intensified worries about the lingering impact of inflation, and spurred investors to dump shares across several industries.

By mid-May, it seemed the S&P 500 was bound to close in a bear market, defined as a drop of 20% or more from a recent high, before a late-month rally sent stocks higher. The S&P 500 is down about 14% from its January high. 

Professional and individual investors alike waded into last week’s rally in the U.S. markets, finding opportunities to scoop up stocks that have seen their valuations fall. However, the issues that sent stocks declining earlier this month have yet to abate.

Many traders remain worried that the Federal Reserve’s plans to raise interest rates aggressively could tip the U.S. economy into a recession. Meanwhile, concerns about an economic slowdown in China and sustained supply-chain disruptions due to the pandemic and the war in Ukraine have continued to weigh on investors’ minds.

“There’s a bit of market uncertainty just about the pretty rapid rally we’ve had, and whether that can be sustained in a world where inflation is clearly still a factor,” said Brooks Macdonald Chief Investment Officer Edward Park.

European Union leaders took a big step in the economic fight against Moscow over its invasion of Ukraine by agreeing to block 90% of Russian oil imports by year-end. The embargo faced opposition from countries highly dependent on Russian crude, especially Hungary. Photo: Olivier Matthys/Associated Press

New survey data released Tuesday showed U.S. consumer confidence declined slightly in May from the previous months.

Crude prices jumped after European Union leaders said they would impose an oil embargo on Russia over its invasion of Ukraine, but later pared their gains. The sanctions are set to include a ban on insuring ships that carry Russian oil, The Wall Street Journal reported. They would include an exemption for oil delivered from Russia via pipelines, which make up one-third of EU oil purchases from Russia.

Front-month futures for Brent crude, the global benchmark, rose 1% to settle at $122.84 a barrel. West Texas Intermediate, the U.S. marker, slipped 0.3% to $114.67 a barrel.

Nine of the S&P 500’s 11 sectors were down on Tuesday. Consumer-discretionary stocks were the best-performing sector, lifted by a 3.8% rise in the shares of online-commerce giant

Amazon.com.

U.S.-traded shares of

Unilever

surged 9.9% after the consumer-goods company said it would add activist investor Nelson Peltz to its board and disclosed his fund now holds a 1.5% stake.

The S&P 500’s energy sector is on track to finish May with the largest gain among the benchmark index’s 11 groups, extending a trend that has flourished for much of 2022. But even some beaten-down stocks are set to end the month in the green, such as

Netflix,

Robinhood Markets

and

Zoom Video Communications.

“When the S&P 500 is [close to entering] a bear market, that has a big psychological impact on those seeking value,” said

Craig Erlam,

senior market analyst at Oanda. “I think the question repeatedly being asked is, ‘Are we seeing a bottom in the markets?’”

In the bond market, the yield on 10-year Treasury notes rose to 2.842% from 2.748% Friday. Bond yields and prices move in opposite directions.

Bitcoin was trading at about $31,664, according to CoinDesk, rising 1.2% from its price at 5 p.m. ET on Monday.

Overseas, the pan-continental Stoxx Europe 600 fell 0.7%, snapping a four-session winning streak, after eurozone inflation rose faster than expected. Consumer prices rose 8.1% on the year in May—the fastest past since records began in 1997—after climbing at a 7.4% rate in April. The inflation report will likely factor into the European Central Bank’s coming interest-rate decisions. Earlier this month, ECB President

Christine Lagarde

indicated that the central bank could increase its key interest rate in July for the first time in 11 years.

Traders worked on the floor of the New York Stock Exchange on Friday.



Photo:

Courtney Crow/Zuma Press

In Asia, the Shanghai Composite Index rose 1.2% after the city’s government said a two-month lockdown would be lifted Wednesday. The shutdown, designed to limit Covid-19 transmission, had slowed the Chinese economy and added to inflationary pressures elsewhere in the world by gumming up supply chains.

Hong Kong’s Hang Seng rose 1.4%. Japan’s Nikkei 225 fell 0.3%.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com, Joe Wallace at joe.wallace@wsj.com and Alexander Osipovich at alexander.osipovich@wsj.com

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World

Stocks Waver After Paring Morning Losses

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U.S. stocks edged lower on Tuesday, resuming their recent downward trajectory after last week’s rally.

The S&P 500 dropped less than 0.1% in midday trading, paring losses a day after U.S. markets were closed for Memorial Day. After snapping a seven-week losing streak last week, the benchmark index has regained some ground and is on track for a slight loss this month. The Dow Jones Industrial Average shed 0.1%, while the Nasdaq Composite rose 0.3%.

Crude prices initially jumped after EU leaders said that they would impose an oil embargo on Russia over its invasion of Ukraine, but later pared their gains. The sanctions are set to include a ban on insuring ships that carry Russian oil, The Wall Street Journal reported. They would include an exemption for oil delivered from Russia via pipelines, which make up one-third of EU oil purchases from Russia, limiting some of their market impact.

Futures for Brent crude, the global benchmark, were recently up 0.5% to $118.22 a barrel. West Texas Intermediate, the U.S. marker, rose 2% to $117.38 a barrel, playing catch-up after the market was closed Monday.

Tuesday’s session will cap another volatile trading month, during which stocks around the world swung wildly as traders tried to assess the outlook for global economies. In the U.S., stocks tumbled shortly after the month began and continued falling amid a slew of earnings and economic data that came in worse than expected. 

Throughout the month, profit warnings from companies ranging from

Snap

to

Target

intensified worries about the lingering impact of inflation, and spurred investors to dump shares across several industries.

By mid-May, it seemed the S&P 500 was bound to close in a bear market, defined as a drop of 20% or more from a recent high, before a late-month rally sent stocks racing higher. The S&P 500 is down about 14% from its January high. 

Professional and individual investors alike waded into last week’s rally in the U.S. markets, finding opportunities to scoop up stocks that have seen their valuations fall. However, the issues that sent stocks falling earlier this month have yet to abate.

Many traders remain worried that the Federal Reserve’s plans to raise interest rates aggressively could tip the U.S. economy into a recession. Meanwhile, concerns about an economic slowdown in China and sustained supply-chain disruptions due to the pandemic and the war in Ukraine have continued to weigh on investors’ minds.

“There’s a bit of market uncertainty just about the pretty rapid rally we’ve had,” said Brooks Macdonald Chief Investment Officer

Edward Park,

“and whether that can be sustained in a world where inflation is clearly still a factor.”

European Union leaders took a big step in the economic fight against Moscow over its invasion of Ukraine by agreeing to block 90% of Russian oil imports by year-end. The embargo faced opposition from countries highly dependent on Russian crude, especially Hungary. Photo: Olivier Matthys/Associated Press

New survey data released Tuesday showed U.S. consumer confidence declined slightly in May from the previous months. President Biden is also expected to meet with Fed Chairman

Jerome Powell

Tuesday at the White House. 

Nine of the S&P 500’s 11 sectors were down on Tuesday. The best-performing sector was energy, which rose on the back of climbing oil prices.

Marathon Oil,

Diamondback Energy

and Hess all advanced more than 1%.

U.S.-traded shares of

Unilever

jumped 9.8% after the consumer-goods company said it would add activist investor Nelson Peltz to its board and disclosed his fund now holds a 1.5% stake.

The S&P 500’s energy sector is on track to finish May with the largest gain among the benchmark index’s 11 groups, extending a trend that has flourished for much of 2022. But even some beaten-down stocks are set to end the month in the green, such as Netflix, Robinhood Markets and Zoom Video Communications. 

“When the S&P 500 is [close to entering] a bear market, that has a big psychological impact on those seeking value,” said

Craig Erlam,

senior market analyst at Oanda. “I think the question repeatedly being asked is, ‘Are we seeing a bottom in the markets?’”

In the bond market, the yield on 10-year Treasury notes rose to 2.868% from 2.748% Friday. Bond yields and prices move in opposite directions.

Overseas, the pan-continental Stoxx Europe 600 fell 0.8%, putting it on track to snap a four-session winning streak, after eurozone inflation rose faster than expected. Consumer prices rose 8.1% on the year in May—the fastest past since records began in 1997—after climbing at a 7.4% rate in April. The inflation report will likely factor into the European Central Bank’s coming interest-rate decisions. Earlier this month, ECB President

Christine Lagarde

indicated that the central bank could increase its key interest rate in July for the first time in 11 years.

Traders worked on the floor of the New York Stock Exchange on Friday.



Photo:

Courtney Crow/Zuma Press

In Asia, the Shanghai Composite Index rose 1.2% after the city’s government said a two-month lockdown would be lifted Wednesday. The shutdown, designed to limit Covid-19 transmission, had slowed the Chinese economy and added to inflationary pressures elsewhere in the world by gumming up supply chains.

Hong Kong’s Hang Seng rose 1.4%. Japan’s Nikkei 225 fell 0.3%.

—Alexander Osipovich contributed to this article.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Joe Wallace at joe.wallace@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Is the Stock Market Open Today? Here Are the Hours for Christmas Eve.

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Americans are getting ready to celebrate Christmas as the U.S. continues to face the highly contagious Omicron variant, persistent inflation and labor shortages. 

But it’s not all doom and gloom.

The S&P 500 index closed up 0.6% on Thursday, and is up 25.8% so far this year. The index also climbed Tuesday and Wednesday, with gains spurred in part by strong economic data. Consumer confidence surged in December, which has helped ease investors’ concerns about the risks posed by Covid-19 and inflation.

The Dow Jones Industrial Average gained 0.6% percent on Thursday, and has climbed 17.5% so far this year.

While many investors may be taking a break on Christmas Eve this Friday, others may be looking to trade. Here’s what you need to know about the markets.

Is the Stock Market Closed on Christmas Eve 2021?

The New York Stock Exchange and the Nasdaq will be closed on Christmas Eve. U.S. bond markets and U.S. over-the-counter markets will also be shut.

Are Foreign Stock Exchanges Open on Christmas Eve?

The London Stock Exchange closed at 12:30 p.m. local time on Thursday, and will remain closed Christmas Eve. The Toronto Stock Exchange will be open on Friday until 1 p.m. Eastern.

In Asia, the Hong Kong Stock Exchange is slated to close at noon local time on Christmas Eve. The Shanghai Stock Exchange and Tokyo Stock Exchange will be open regular hours.

How Are Retail Stocks Poised to Look This Christmas and Beyond?

While many people started holiday shopping early, November spending didn’t pick up as much as experts anticipated. But the outlook for the next few months is strong, analysts say.

Companies such as


Walmart

(ticker: WMT),


Costco Wholesale

(COST),


Target

(TGT) and


BJ’s Wholesale Club Holdings

(BJ) look well-positioned to deal with more consumers staying at home as they wait out the Omicron variant, Jefferies analyst Stephanie Wissink says. Next year could be the year of fashion catch-up, which she says may boost shares of


Macy’s

(M) and


Kohl’s

(KSS).

How Have Stocks Performed on Christmas Eve?

Excluding years when the market was closed on Christmas Eve, the S&P 500 has averaged a 0.2% gain on the occasion–which is higher than index’s daily average gain of 0.03%, according to Dow Jones Market Data. But the S&P 500’s average move on Christmas Eve is 0.48%, lower than its daily average move of 0.74%.

What about New Year’s Day and New Year’s Eve?

The New York Stock Exchange, the Nasdaq, and U.S. over-the-counter markets will be open regular hours on Friday, Dec. 31. However, U.S. bond markets will close early at 2 p.m. Eastern.

New Year’s Day 2022 falls on a Saturday. And while most global financial markets will be closed on Monday, Jan. 3, 2021, in observance of the holiday, U.S. markets will be open.

The lack of a New Year’s Day respite for stock traders is the result of NYSE Rule 7.2, which stipulates that the exchange will be closed either Friday or the following Monday if the holiday falls on a weekend, unless “unusual business conditions exist, such as the ending of a monthly or yearly accounting period.”

Write to Logan Moore at logan.moore@barrons.com

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Business

How to Find the Healthiest Dividend Stocks for Your Portfolio

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One of the keys to successful dividend investing is separating the wheat from the chaff—finding stocks with secure payouts that can grow consistently and over the long haul.

Some of the highest-yielding shares, though tempting at first blush, can lead to trouble, notably cuts or suspensions and big capital losses.

Picking equity-income stocks got even tougher early in the pandemic last year when stalwart dividend payers like


Southwest Airlines

(ticker: LUV),


Boeing

(BA), and


Walt Disney

(DIS) suspended their payouts to preserve capital.

Though overall dividend health has improved markedly since then and looks good heading into 2022, it’s important to keep quality in mind. However, pinpointing what separates such stocks from the rest of the pack can be tricky, given the subjective nature of defining quality.

Barron’s spoke to three money managers for guidance, and to learn about some of their favorite dividend stocks.

A quality payout “isn’t only sustainable but preferably can grow over time,” says Mike Barclay, a senior portfolio manager at Columbia Threadneedle Investments. “It’s one of the reasons we don’t focus on yield,” he adds. Barclay is a manager of the $39 billion


Columbia Dividend Income
fund (LBSAX). As of Oct. 31, its top holdings included


Microsoft

(MSFT),


JPMorgan Chase

(JPM), and


Johnson & Johnson

(JNJ).

A dividend yield, Barclay says, “is just a formula” and “it really doesn’t tell you about the health of the company or the ability to pay that dividend in the future.”

Steve Goddard, founder and chief investment officer of the London Co., which manages money in separate accounts, prefers companies with high returns on capital and strong balance sheets. “High return-on-capital companies usually by definition will generate a lot more free cash flow than the average company would,” he says. And cash flow is what pays the dividend.

As of this year’s third quarter, the Richmond, Va.-based London Co.’s equity-income strategy’s top 10 holdings included


Apple

(AAPL), which recently yielded 0.5%; chip maker


Texas Instruments

(TXN), 2.4%;


Microsoft

(MSFT), 0.7%; home-improvement retailer


Lowe’s

(LOW), 1.2%; and asset manager


BlackRock

(BLK), 1.8%.

Another potential plus for quality stocks: Besides offering solid and growing dividends, many sport attractive valuations and trade at a discount to the


Russell 1000
index, says Goddard.

Company / Ticker Recent Price Dividend Yield Market Cap (bil) YTD Return Latest Dividend Increase
Coca-Cola / KO $55.00 3.1% $238.5 3.5% 2.0%
JPMorgan Chase / JPM 160.71 2.5 480.4 29.6 11.0
Texas Instruments / TXN 196.39 2.4 183.8 22.5 13.0
Comcast / CMCSA 48.94 2.0 226.5 -4.9 9.0
Microsoft / MSFT 334.97 0.7 2500.0 51.9 11.0

Data as of Dec. 8

Source: FactSet

David Katz, chief investment officer at Matrix Asset Advisors in White Plains, N.Y., cites the


S&P 500 Dividend Aristocrats Index
when asked about quality companies that pay dividends. The 65 firms in the index, all of which have paid a higher dividend for at least 25 straight years, include


Target

(TGT),


Chevron

(CVX), and


Caterpillar

(CAT).

“These are well-financed companies with long operating histories, good balance sheets, and they have consistently maintained and grown their dividends,” says Katz.

He points out that the stock market, with its tilt toward growth companies, hasn’t treated quality companies with much respect this year.

“You have a lot of really good drug companies that have a significant focus on dividends and dividend growth, have good earnings and good earnings growth, but the stocks have just been miserable,” Katz says, pointing to


Merck

(MRK) and


Amgen

(AMGN) as prime examples.

Merck, which yields 3.8%, has returned about minus 4% this year, dividends included, compared with about 26% for the


S&P 500.
Amgen, a biotech firm whose stock yields 3.6%, is also down about 4% this year.

For Barclay and his colleagues, the hunt for quality dividends starts with free cash flow, which is typically calculated as operating cash flow minus capital spending. “At the end of the day, a dividend can’t be sustained, let alone grown, over time, if the underlying cash from operations isn’t growing,” he observes.

He also pays close attention to a company’s balance sheet—the stronger, the better for dividends.

“You don’t always get paid for a strong balance sheet, except when you get into a stressed environment” like that in March 2020, when the pandemic hit the U.S. hard, says Barclay. “If you don’t have a strong balance sheet, you can’t weather that storm.”

Barclay also analyzes a company’s payout ratio, which he defines as the percentage of free cash flow that’s paid out in dividends. Many others define it as the percentage of earnings that get paid out in dividends.

“When the payout ratio is low, we know they’ve got a lot of room to run for dividend growth,” he says. “The ability [to pay it] is there. It’s our job to really press management whether or not the willingness is there to grow the dividend over time.”

One stock whose dividend Barclay likes is Microsoft, which has boosted its disbursement at an annual rate of about 10% a year. It yields only 0.7%, well below the S&P 500’s average of about 1.3%. However, Barclay says that his cost basis for the stock—the average of what he paid for the shares—is under $30, meaning his yield is effectively above 8%.

Two other dividend stocks he favors are analog chip maker Texas Instruments and banking powerhouse JPMorgan Chase, which yields 2.5%.

The market for analog chips is growing—a boon for TI—and the industry is consolidating, he says. As for JPMorgan Chase, Barclay says, it has “a very diversified business model that allows it to ride the economic cycles with some consistency.” That allows it to pay and increase its dividend.

Katz likes


Coca-Cola

(KO), which was recently yielding 3.1% but had only returned about 4% this year. He likes the beverage company’s prospects and adds that it “actually has been pretty good in terms of dividends.”

Coke’s chief financial officer, John Murphy, said during its third-quarter earnings call in late October that improving cash flow will help continue “our track record to grow our dividend.”

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com

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Business

Target, Facebook Issue Mask Requirements for Some Employees

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Facebook Inc. said Monday it will require any employee working at its U.S. offices to wear a mask, regardless of vaccination status. The social-networking giant last week said that employees working at its U.S. office would need to be vaccinated.

The new masking policy takes effect Aug. 3 and will remain in place until further notice, the company said. The move reflects rising Covid-19 cases, “the newest data on Covid variants, and an increasing number of local requirements,” a Facebook spokesman said.

Many of Facebook’s U.S. employees remain at home. The company has previously said it plans to reopen its U.S. offices more broadly this fall.

Separately, Target Corp. said Monday it would require workers to wear masks regardless of vaccination status in counties deemed at high risk of Covid-19 transmission, mirroring policies implemented by other companies last week in the wake of new guidance on mask wearing from U.S. officials.

Many retailers are taking new steps to follow the shifting federal health guidelines as Covid-19 cases jump in the U.S. but stopping short of the moves last year when they imposed nationwide mask rules when vaccines were unavailable. Roughly half the U.S. population is fully vaccinated.

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