Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022. Reuters / BRENDAN MCDERMID

U.S. stock indexes slipped in choppy trading on Tuesday as investors digested Target Corp's gloomy margin forecast that spooked the retail sector, while awaiting inflation data due later this week.

Shares of Target slid 4.3% as the big-box retailer said it would have to offer deeper discounts and cut back on stocking discretionary items.

The weak outlook weighed on other retail stocks, with main rival and Dow component Walmart Inc falling 2%. Dollar General, Costco, Home Depot and Best Buy Co Inc fell between 0.4% and 2.3%.

"While Q2 margins are going to be lower than expected for Target, they're acknowledging the challenges of the environment and preparing to set themselves up for a better second half," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"There's been a shift in sentiment from two weeks ago to a more optimistic or at least a less pessimistic scenario about where the market could be in three to six months from now, in general."

Some analysts also noted that while clearing inventories would be negative for these companies in near term, longer term it would help roll-over inflation as costs come down and demand wanes.

"You're going to see more instances like Target where they have excess inventories that need to be discounted, and that's going to be actually disinflationary in the intermediate term," said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

Seven of the 11 major S&P sectors declined, with the consumer discretionary sector down 1.3%. Energy was the top gainer, up 2.2%.

Growth stocks were mixed. fell 2.2% to weigh the most on the S&P 500 and the Nasdaq.

All eyes are now on the consumer price index (CPI) report on Friday that is expected to show inflation remained elevated in May, though core consumer prices, which exclude the volatile food and energy sectors, likely ticked down on an annual basis.

Money markets are expecting a 50-basis points rate increase next week, followed by July and possibly in September.

"A lower CPI could probably take the Fed off the aggressive hawkish tone going forward and you would certainly see a stock market rally if they did pull back," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

At 12:17 p.m. ET, the Dow Jones Industrial Average was down 80.06 points, or 0.24%, at 32,835.72, the S&P 500 was down 9.58 points, or 0.23%, at 4,111.85, and the Nasdaq Composite was down 19.61 points, or 0.16%, at 12,041.77.

Kohl's Corp jumped 7.9% as the department store chain entered exclusive talks with retail store operator Franchise Group Inc over a potential sale that would value it at nearly $8 billion.

Declining issues outnumbered advancers for a 1.26-to-1 ratio on the NYSE and for a 1.06-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 30 new lows, while the Nasdaq recorded 21 new highs and 93 new lows.