Stocks plunged Thursday as markets tumbled on credit and housing concerns — compounding fears of an already shaky foundation for consumer spending and pushing the S&P Retail index to a nine-month low.
The Dow Jones Industrial Average closed down 2.3 percent to 13,473.57 — its biggest drop since February. The New York Stock Exchange fell 2.7 percent to 9,659.36, the S&P 500 lost 2.3 percent to 1,482.66, and the Nasdaq slid 1.8 percent 2,599.34.
The S&P Retail Index followed suit, falling 2.7 percent to 490.02, its lowest mark since Nov. 9. The index is down 2.6 percent to for the year.
Hanesbrands Inc. and Crocs Inc. were among the lone shining stars among retail and consumer stocks after both brands posted second-quarter results. Hanesbrands (see related story on page 15) closed up 12.8 percent to $30.07, while Crocs, which posted results after the market closed, rose 18.1 percent in late trading to $59.70.
“Although people may argue about the reason that today was the day for a major correction, several events occurred within the last several weeks that led to a repricing of risk across the credit and equity markets,” said Roy Ophir, a partner and Senior Analyst at Brownstone Asset Management, a New York-based hedge fund that specializes in high-yield corporate debt and distressed securities.
Ophir pointed to Bear Stearns’ mid-June announcement of the “impending failure” of an internal hedge fund that speculates on mortgage-backed securities, followed by bond investors’ rejection of several large debt issuances late last month. Thursday, Ophir noted that debt financing for two more leveraged buyouts were either postponed or canceled.
“Debt is used by private equity shops to increase their return on investment, much like mortgages are used by individuals to increase the affordability of real estate purchases,” Ophir said. “Without the debt necessary to finance these large LBOs, private equity cannot afford to pay as much for those companies — therefore their stock prices trade down.”
BB&T Capital Management analyst Eric Tracy noted other macro pressures, including housing and energy prices, continue to weigh on the markets — and are expected to do so for “quite some time.”
“This pull-off or correction — whatever you call it — is not all that surprising,” Tracy said. “The magnitude of a one-day hit certainly causes anyone to take a hard look and question if this is a correction and will we get back to a bull market or is it sustainable?”
At the same time, First Albany Capital analyst Paula Kalandiak said that retail has been a tough sector for some time — even before recent, discouraging data reports.
“But we believe that there are still opportunities to find companies that have weathered the storm better than others,” said Kalandiak, who likes consistent performers such as Gymboree and Dress Barn. “We are trying to stay away from retailers showing deteriorating fundamentals.”