Stocks Waver as Debt Deal Nears

Retail fared worse than other sectors throughout the day. The S&P Retail Index ended off 1 percent, or 5.22 points, at 533.94.

Stock markets were caught in a will-they-or-won’t-they limbo Monday as Washington lawmakers worked to finalize a deal to raise the nation’s debt ceiling and avoid a potentially catastrophic default.

Markets zigzagged from the opening bell and spent most of the session well in the red, then recovered as the close neared. Retail fared worse than other sectors throughout the day. The S&P Retail Index ended off 1 percent, or 5.22 points, at 533.94, as the Dow Jones Industrial Average closed with a decline of just 10.75 points to 12,132.49.

The retail decliners included Express Inc., down 5.8 percent to $21.15; Saks Inc., 2.1 percent to $10.51, and J.C. Penney Co. Inc., 1 percent to $30.45. Bucking that trend was Zale Corp., which gained 9.8 percent to $6.16.

The deficit reduction package being pushed by President Obama and Congressional leaders would raise the debt limit by between $2.1 trillion and $2.4 trillion and impose 10-year spending caps on the operating budgets of the government’s federal agencies. This would result in a collective reduction in annual domestic spending of nearly $1 trillion over the next decade, according to a White House fact sheet.

The outline of the plan does not include specifics on which Cabinet agency budgets or programs might be cut, but areas important to the fashion industry, such as the cotton or wool trust funds, textile enforcement and port security could face reductions. In addition, budgets for federal agencies governing trade, such as the U.S. Trade Representative’s office and Commerce Department, could face reductions in operating funds.

The broad package also includes a second tranche of spending cuts, which will be determined by a special joint committee tasked with identifying an additional $1.5 trillion in cuts, including from entitlement and tax reform, over 10 years.

Barring a last-minute breakdown in the debt deal, retail investors can start to turn their attention to July comparable-store sales results due on Thursday and an update on the nation’s unemployment rate and payrolls on Friday.

While payrolls are expected to gain versus last month’s very poor showing, analysts see July sales as a mixed bag for retailers.

“Extreme heat during the month drove shoppers to malls in search of cooler temperatures,” said Adrienne Tennant, an analyst at Janney Capital Markets. “The heat…has been very helpful in driving traffic during the month and while we expect July to be another solid sales month for retail, we do expect it to have slowed from June’s very strong levels.”

Tennant said comps would be largely positive for softline retailers, but that investor expectations are also high.

Eric Beder, an analyst at Brean Murray, Carret & Co., said July was a tepid month for chains targeting teens. The analyst noted that teens and their parents were waiting for sales or the last minute to buy and that the back-to-school season has been price-driven for the last three years.