A retail armageddon is taking place as soaring inflation converges with slowing growth. The Tesco share price collapsed to a low of 258p on Wednesday, and the trend will likely continue. This TSCO price was about 8% below the highest level this week. Other UK and US retail stocks have plummeted as well. For example, Target stock declined by over 25%, while Walmart has fallen by 17% in the past five days.
The retail sector is going through major challenges as inflation surges and logistics challenges remain. On Wednesday, data published by the ONS revealed that the headline CPI jumped to a multi-decade high of 9%. Unfortunately, with the war in Ukraine continuing, there is a likelihood that inflation will remain at elevated levels in the coming months.
Retailers like Tesco have offset this inflation by raising prices on most things. However, there are now concerns that further price increases will not be feasible. This outlook was seen when Target and Walmart published their quarterly results this week. The two firms warned that their profitability will be significantly compromised because price increases has limits.
Another challenge is that retailers bought many inventories, thinking that demand will remain strong. Now, they are left with substantial inventories in a period when growth is slowing. Further, the rising cost of doing business is rising as wages jump, and shipping prices remain at elevated levels. Also, recent data showed that the UK retail sales sunk. Therefore, there is a possibility that the Tesco stock price will follow those of Target, Kroger, and Walmart.
Tesco share price forecast
Turning to the two-hour chart, we see that the TSCO share price has plummeted recently, and the trend will continue. The stock managed to move below the important support level at 261p, which was the lowest level on May 6th. Along the way, the stock formed a three black crows pattern while the MACD has dropped below the oversold level.
Therefore, the stock will likely continue plummeting, with the next key stop being at 240p. The stop-loss for this bearish view is at 265p.