While investors on Wall Street dumped stocks Tuesday on fears of a recession, there was renewed optimism about at least one sector: retail.
The S&P Retail Index surged 5.4 percent to 394.39 as shares of retailers across all channels responded to the Federal Reserve Board's emergency — and unprecedented — interest rate cut of 75 basis points. Investors are already banking on another rate cut next week.
The much-battered retail area was, ironically, the lone star as the Dow Jones Industrial Average closed down 1.1 percent to 11,971.19, after dropping more than 460 points earlier in the day. The S&P 500 slid 1.1 percent to close at 1,310.50. The New York market declines Tuesday followed steep falls Monday on Asian and European markets.
American investors rallying to retail were betting that an economic stimulus package from the Bush administration — as well as lower rates on variable interest debt such as home equity loans, credit cards and adjustable rate mortgages — would put more cash in consumers' hands.
American Eagle Outfitters Inc. was one of the top gainers on the New York Stock Exchange, soaring 11 percent to $21.86. Women's apparel retailer Chico's FAS Inc. also rose sharply, up 13.1 percent to $7.95, while Talbots Inc. increased 7.6 percent to close at $7.51.
Valuations also jumped for department stores. After unveiling a structural overhaul of its business, Sears Holdings Corp. swelled 11.7 percent to close at $99.85. Macy's Inc. increased 5.2 percent to $24.25, J.C. Penney Co. Inc. rose 6.1 percent to $43.42 and Kohl's Corp. jumped 6.8 percent to close at $42.71. High-end retailer Nordstrom Inc. rose 8.9 percent to $32.52.
Shares of discounter Target Corp. increased 6.9 percent to $29.63, even though the company on Monday said January sales are trending at the low end of its reduced forecast. Wal-Mart Stores Inc. also jumped 3.3 percent to $49.13.
On Wednesday, analysts and economists set aside the debate of whether the U.S. was in a recession or not and replaced it with questions on improving economic conditions. Inflationary prices on consumer goods, a poor job outlook, low-wage growth and overall uncertainty in a presidential election year seemed to have sapped consumer confidence and spending, which drives two-thirds of the country's economic engine. One economist said the focus should be on the housing market.
"What we really want to do is stabilize housing by the peak spring selling season. Perhaps the most efficient way to do that is getting mortgage yields as low as we can," said John Lonski, chief economist at Moody's Investor Services. "Lower mortgage yields firm up home prices."
A mortgage yield is a measure of yield on a mortgage-backed bond. Lonski said in the past when mortgage rates plunged, prices shot up, which contributed to the current housing crisis. But he said this is what's needed to stabilize the housing market.
Regarding the financial stimulus efforts currently being employed, which should benefit the economy, Lonski said such moves "won't prevent recession, but it should shorten its stay and lessen its severity."
"In the final analysis, subpar consumer spending will persist," Lonski said.
From a broader Wall Street perspective, the Fed's rate cut may have been too little too late. At Tuesday's opening, investors were keyed into declining indices in the major financial markets on Monday, a trading holiday in the U.S. On Tuesday, the Japanese Hang Seng Index plummeted 8.7 percent to 21,757,63, reaching its lowest point since Sept. 11, 2001. Components of the index include contemporary apparel retailer Esprit Holdings Ltd., which fell 5.7 percent, and Li & Fung Ltd., which tumbled 7.2 percent. The Nikkei 225 dropped 5.7 percent to 12,573.05, a new 52-week low.
When the Fed made the rate cut announcement early Tuesday morning, investors initially shrugged off the news. The sell-off continued but slowed as trading progressed and investors weighed the emergency measure.
The London Stock Exchange's FTSE 100 declined on Monday, losing 20 percent of its value compared with the summer, but it rose Tuesday, closing up 2.9 percent, while retail stocks showed some signs of recovery. Burberry Group plc shares closed up 2.2 percent at 4.05 pounds, or $7.94, while Marks and Spencer Group plc rose 5.8 percent to 4.32 pounds, or $8.47. French Connection Group plc rose 1 percent to 99 pence, or $1.94, while Mulberry Group plc was down 1.3 percent to 1.71 pounds, or $3.35.
British shoppers seem spooked from spending by a slowdown in house prices, higher food and energy costs and the Bank of England's decision earlier this month to leave interest rates unchanged.
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion
Eighty degree temperatures and outdoor installations at the annual Art Basel Miami Beach called for bright, elevated beachwear. See more street style pictures on WWD.com. #theyarewearing #ABMB (📷: @lifeinreverie)
Following September’s emotional tribute to her brother Gianni, Donatella Versace wanted to bring the spring show’s deep sense of intimacy to her @versace_official pre-fall collection. Donatella found inspiration in Versace Palazzo in Milan and from Gianni’s opulent apartment. Archival patterns and new motifs were splashed on silk shirtdresses and fitted jersey frocks. See the rest of the photos on WWD.com. #wwdfashion
Demna Gvasalia continues to shake up the Paris fashion calendar — and experiment with new runway timetables for his @vetements_official brand. WWD has learned that Vetements plans to stage its next coed show for the fall 2018 season on January 19 during Men’s Fashion Week in the French capital. Details about the timing and venue have not been confirmed — stay tuned on WWD.com to catch the latest. #wwdnews (📷: @giovanni_giannoni_photo)
@zacposen's go-to holiday gift? Cookies! "I'll usually bake cookies and send them as a gift," said the designer, who recently released his cookbook "Cooking With Zac: Recipes from Rustic to Refined." Get the recipe for his Brown Butter-Chocolate Chip Cookies via link in bio 🍪🍪🍪 #wwdeye #cookingwithzac
For @monsemaison’s pre-fall 2018 collection, Fernando Garcia and Laura Kim honed in on the brand’s many signatures — men’s wear, which was tweaked and feminized through deconstruction, proportion play and lots of bare shoulders. See the rest of the photos on WWD.com #wwdfashion (📷: George Chinese)
On Friday night, @yohjiyamamotoofficial received the Design for Asia Lifetime Achievement Award in Hong Kong. The 75-year-old designer has been celebrated for many years and is best known for his dark and avant-garde tailoring. “In my long career, in design, architecture, [I’ve been to] so many parties, this is the very first time that I have such a warm feeling, I really appreciate this,” Yamamoto said. #wwdfashion (📷: @dominiquemaitre)