Stocks trim losses, Nasdaq turns positive despite Target's profit warning

Stocks struggled for direction on Tuesday after Target issued a warning about its current quarter's profits, stoking fears of a potential recession.

The Dow Jones Industrial Average was down 36 points, or 0.1%, after opening down more than 200 points. The S&P 500 was little changed, while the Nasdaq Composite ticked up 0.2%.

Target shares fell about 2% after the retailer announced plans to work down excess inventory. The company said it will implement additional markdowns to products and cancel some orders. Target also lowered its operating margins guidance for the quarter. Walmart shares followed Target lower, sliding 2%.

Major retailers have delivered mixed results and outlooks in recent weeks, adding to stock market volatility as investors try to determine if they signal the start of a potential recession or a rapid change in consumer spending.

"Overall positioning appears to be skewed only modestly toward defense. Our sense is that the shift toward non-cyclicals and high quality will accelerate as recession odds increase in the months ahead. That said, with many investors apparently trying to time recession, U.S. equity markets are likely to remain prone to big upside and downside rips," Chris Senyek of Wolfe Research said in a note to clients on Tuesday.

In deal news, Kohl's jumped nearly 9% after the retailer said it was in exclusive negotiations with Franchise Group about a potential takeover.

All three of the major averages finished slightly higher Monday, but gave back most of their gains from earlier in the day as the 10-year Treasury yield spiked up to 3% and hit its highest level in nearly a month. The 10-year yield fell back below 3% on Tuesday, possibly helping stocks limit early losses.

Sentiment was largely muted Monday, with no U.S. economic data releases and a quiet Federal Reserve in its blackout period. There were also no earnings reports for major companies.

Investors are still assessing whether the recent bounce in stocks is a bear market rally or has the market reached a bottom from this year's sell-off.

"For six consecutive weeks since the beginning of April, investors continued to add new shorts and, hence, extend their bearish bias on the market. While this bearish momentum did fade at the end of May, the past week has shown no signs of any bullish flow momentum to support a more sustained rally from here," Citi strategist Chris Montagu said in a note to clients.

Investors are still following what is a lighter week in company earnings. Shares of United Natural Foods jumped 9% after the wholesale company beat expectations for its fiscal third quarter. Food stock J.M. Smucker rose slightly after its quarterly report.

In economic data, May's consumer price index reading is the big one investors are focused on, which is due out Friday. If the reading is cooler than April's numbers, as expected, some could interpret it as a sign that inflation has peaked.