Target, a leading American big box department store chain, has recently announced the second of two large scale profit warnings. The real surprise was the short gap between downgrades, reflecting how quickly earnings have deteriorated. This is consistent with commentary from one of the US’ other leading retailers, Walmart, which has observed similar trends in relation to consumer consumption beginning to weigh on revenue.

Following the announcement, Target traded heavily to the downside, which comes as no great surprise. The negative headlines, combined with the sheer size of Target and its weight in major indices, put downward pressure on the broader US market in its first hours of trading. By the end of trading, 4pm on the East Coast, all three of the Dow Jones, S&P 500 and Nasdaq Composite Index were trading significantly stronger. This is even though US consumer sentiment is generally viewed as a leading barometer of the state of the US economy.

Bad news followed by a positive outcome is the reverse of what happened last Friday stateside. A bumper jobs report was followed by broad market weakness. Why the divergence? The answer is simple, news that the economy is running hot is greeted with concern that the Federal Reserve (Fed) will likely need to increase rates higher than what is currently priced in by equity and debt markets. Consumer weakness has the reverse effect and highlights that the economy is already slowing down and may give the Fed pause for thought.

To complicate matters the founder of the world’s largest hedge fund manager, Ray Dalio, is predicting that come 2024 Central Banks will likely be forced to cut interest rates again, which highlights that the path ahead for interest rates is less than clear.