Signs China is reining in lending and tempering its economic growth sparked a sell-off in Shanghai that weighed on global stock markets and ultimately pushed the U.S. retail sector down 1.6 percent Monday.
The S&P Retail Index slid 5.80 points to 364.55 as the Dow Jones Industrial Average declined 0.5 percent, or 47.92 points, to 9,496.28.
Bank lending in China for August could fall below the record low of 270 billion yuan, or $39.58 billion, seen a year ago, according to the state-run Xinhua news agency. Chinese banks lent out 7.73 trillion yuan, or $1.13 trillion, through July this year, well ahead of the annual target of 5 trillion yuan.
“It’s basically a signal that they want things to cool off,” said Paul Nolte, director of investments at Hinsdale Associates. “The expectation was that China was going to be the global driver for economic recovery instead of the U.S. They were going to be picking up the slack. If China’s trying to slow their economy, that’s not good for the rest of us.”
The Shanghai Composite Index sank 6.7 percent to 2,667.75 Monday, its sixth-largest decline since January 2000.
U.S. stocks have continued to rise from the depths of the financial crisis as investors anticipate an economic comeback that has yet to begin in earnest. Retail stocks rose 2.8 percent last month and are up 30.5 percent so far this year. Among the retailers losing ground Monday were Abercrombie & Fitch Co., down 4.3 percent to $32.29; Saks Inc., 4.2 percent to $6.10; The Talbots Inc., 3.9 percent to $5.96; Coach Inc., 3.4 percent to $28.29; Tiffany & Co., 3.2 percent to $36.38, and The Wet Seal Inc., 3 percent to $3.51.
“Our market has gotten so far ahead of economic fundamentals…so any ill wind that’s blowing is going to affect the market,” Nolte said. The focus is now on the holiday season, with many projecting a turnaround, and Nolte said stocks could experience a “correction” if retail sales continue to falter.
The other Asian markets held relatively steady on Monday with the Nikkei 225 in Tokyo slipping 0.4 percent and the Hang Seng Index in Hong Kong falling 1.9 percent. The CAC 40 in Paris dipped 1.1 percent while the FTSE 100 in London was closed for a bank holiday.
U.S. joblessness continues to be one of the biggest problems facing retailers and the economy.
Economists expect the U.S. government will report Friday that employers shed another 228,000 jobs last month, on top of the 247,000 positions eliminated in July.
However, The Conference Board said Monday that the number of online job postings rose by 169,000 last month.
“The August increase is good news, showing what we hope will be a continued improvement in job demand this fall,” said Gad Levanon, senior economist at The Conference Board, who also noted consumer confidence is on the rise.
“While all of this is good news, the gap between the number of unemployed and the number of advertised vacancies still remains at about 11 million, with over four unemployed for every online advertised job vacancy,” Levanon said.