The stock market generally gained ground on Tuesday, lifted in part by a strong showing from one of the biggest companies in the retail sector. Yet on Wednesday morning, the picture changed somewhat, and major market benchmarks went from positive to negative as new evidence emerged that things might not be as rosy as some had believed.

In particular, the latest financial results from department store giant Target (TGT 1.23%) left investors wondering if the holiday season might not fare as well as they had previously hoped. Moreover, news from cruise ship operator Carnival (CCL 7.64%) (CUK 7.68%) reminded market participants that the fallout from higher interest rates and the lingering macroeconomic impacts of the COVID-19 pandemic could extend for years to come.

Falling short of the bull's-eye

Shares of Target plunged nearly 16% in premarket trading on Wednesday morning. The retail giant reported third-quarter financial results that failed to show the improvement investors had counted on seeing after Target hit stiff headwinds earlier in the year.

Target had sharply mixed results during the quarter. Revenue came in at $26.5 billion, up 3.4% from year-ago levels. Comparable sales grew 2.7%, with store-based comps climbing 3.2% while digital sales comparables inched higher by 0.3%. However, Target's bottom line suffered more damage, with adjusted earnings getting cut nearly in half to $1.54 per share.

What had investors concerned more broadly were the comments from CEO Brian Cornell about business conditions. Cornell said that late in the quarter, Target saw shopper behavior change markedly, with inflation, rising interest rates, and general economic uncertainty having a substantial impact on sales and profit trends for the retailer. The CEO attributed that shift to Target's shortfall in earnings, and it has prompted the department store giant to take aggressive action to improve efficiency in light of more conservative expectations about how the remainder of the year will go.

Indeed, Target now believes that comparable sales in the fourth quarter could fall by low-single-digit percentages year over year. That's a stark contrast to the optimism that Target shareholders felt as recently as last week, but it could reflect a reality that extends beyond Target to other retailers as well.

Setting sail

Meanwhile, shares of Carnival dropped 13% early Wednesday. The cruise ship operator has seen its stock recover sharply in the past month, but the latest financial move from the company reminded investors how difficult it will be for Carnival to recover fully from the COVID-19 pandemic.

Carnival announced late Tuesday that it would offer $1 billion in five-year convertible senior notes in a private offering to institutional investors. The new debt is intended to be part of a broader plan from Carnival to restructure part of its outstanding obligations, with a particular emphasis on refinancing debt maturing in 2024.

Shareholders have already had to deal with the impact of dilution on their interests due to the stock offerings that Carnival has made at various times over the past few years, and the new convertible debt will potentially add further pressure. Although Carnival hasn't yet announced pricing on the debt, it's likely that the conversion price will end up modestly above the current share price, making it likely that even a small increase will lead to bondholders eventually exercising their conversion rights.

With this morning's drop, Carnival stock now trades about 80% below its pre-pandemic levels in late 2019. Although it appears increasingly likely that the cruise ship operator will survive, it could be a long, long time before investors see a share price approaching those 2019 levels again.