By and and  on October 14, 2008

The selling finally stopped.

Investors at last reversed course Monday and drove retail shares up a record-breaking 9 percent, snapping a string of eight down and often harrowing trading sessions as the Federal Reserve and other central banks promised to do whatever it took to keep the short-term credit markets moving.

The Standard & Poor’s Retail Index ended the day up 24.62 points at 299. The previous record increase on a percentage basis was a

7.9 percent rise in July 2002. Prior to Monday’s boost, retail shares had plunged a total of 24.3 percent in the first eight days of trading in October.

But the bull isn’t entirely back: retail stocks lagged the larger market as stores head into a holiday season poised for the weakest growth in years. The Dow Jones Industrial Average leapt 11.1 percent, or 936.42 points, to 9,387.61, the largest single point advance on record, by far eclipsing the 499.19 gain of March 16, 2000.

“It looks like people realized today that governments around the world are going to commit whatever it takes, without limit, to stop this panic,” James Smith, chief economist at Parsec Financial Management, said.

Stocks were buoyed by a wave of government intervention, including promises to prop up banks and guarantee loans, as well as Morgan Stanley’s deal to sell a 21 percent share of its business to a Japanese bank for $9 billion.

Investors also seemed ready for the first time in weeks to see the glass as half full and stocks as undervalued.

“Market participants have incredibly overreacted,” Smith said. “Friday was the bottom of the stock market. It probably was not the bottom for the economy. It takes longer to turn around a $14 trillion behemoth, but I think that the bottom could easily be next month.”

Still, by all accounts, consumer confidence has been hurt mightily in the last month as comparisons with the Great Depression blared from newspaper headlines and news networks.

Shoppers are worried about their jobs and their investments, and are expected to curtail spending enough to leave stores with slimmer profit margins as they move inventory at deep discounts.

“You’re seeing a lot of sales signs, more sales signs out earlier just in the last couple of weeks than you’ve ever seen before,” Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, said. “Price deflation is something that can’t be avoided. For whatever buyers are out there, it’s going to be their market.”

Those best positioned to take advantage of that return, whenever it should come, are today’s stronger players. Retail mainstays such as Wal-Mart, Macy’s, Nordstrom, Kohl’s, J.C. Penney, Polo Ralph Lauren, Abercrombie & Fitch, Neiman Marcus and Saks Fifth Avenue will generally stick by their plans, he said.

“The industry leaders are going to treat this as a two- to four-year opportunity,” Aronson said. “They’re going to react to this downdraft, obviously. There are going to be tighter inventories. There are going to be tighter expenses. The leaders are not going to overreact. They will go forward with reasonable store expansion. They’ll go forward with globalization plans.”

Nearly all of fashion joined in Monday’s rally, though most still have a long way to go to make up recent declines.

Broadlines stocks fighting their way back included Macy’s, up 11.3 percent to $11.04; Target, 10.3 percent to $40.81; Wal-Mart, 7 percent to $54.50; Saks, 6.7 percent to $6.22; Kohl’s, 6.3 percent to $33.71, and J.C. Penney, 5.1 percent to $23.77.

Specialty stores were led up by Talbots, rising 13.3 percent to $10.20; AnnTaylor Stores, 11.3 percent to $17; Gap, 10 percent to $15.20; Urban Outfitters, 9.6 percent to $25.82, and Abercrombie & Fitch, 9.4 percent to $29.84.

However, there were stock decliners such as New York & Co., which issued a profit warning Friday afternoon and on Monday was down 41.1 percent to $4.27.

Vendors riding the wave up included Polo Ralph Lauren, ahead 10.3 percent to $54.65; Coach, 10.3 percent to $20.24; Phillips-Van Heusen, 5.8 percent to $32.55, and Jones Apparel Group, 4.2 percent to $14.41.

Following news of the British and European governments’ action to rescue banks on Monday, the FTSE 100 rose 8.3 percent to 4,256.99, while France’s CAC 40 rose 11.18 percent to 3,531.50.

Compagnie Financière Richemont SA closed up 9.2 percent, while Burberry rose 3.5 percent and Marks & Spencer closed up 6.2 percent. French Connection closed down 2.5 percent. In Paris, L’Oréal shares zoomed up 14.7 percent; LVMH Moët Hennessy Louis Vuitton gained 12.9 percent; PPR, 6 percent, and Hermès International, 5.1 percent. In retail, Carrefour rose 5.4 percent.

Speaking of the London market, Andrew Wade, a retail analyst at Numis Securities, said, “In terms of retail shares, we’re up 4 to 5 percent, but then the market is up 4 to 5 percent.

“A lot of excitement happens with interest rate announcements,” added Wade, referring to last week’s interest rate cut, “but fundamentally, it doesn’t change all that much. We’re heading for a difficult period. I think there’s more to come — we have a fairly bearish sector view, more so than we did a month ago. There will be more earnings downgrades coming up. We’ve already had Marks & Spencer….If we can’t trust earnings, we’ve got further to fall.”

Meanwhile, Italy’s S&B/MIB Index rebounded 11.5 percent, with Benetton Group SpA, IT Holding SpA and Safilo Group SpA among the day’s best performers. Benetton surged 16.5 percent, IT Holding jumped 15.4 percent and Safilo gained 15.1 percent. Tod’s SpA recovered 10.6 percent following reports the leather goods group may register a 12 percent gain in net profits to 85 million euros, or $114.1 million, this year, on sales of more than 700 million euros, or $939.2 million, up 8.5 percent.

But IT Holding chairman and chief executive officer Tonino Perna told Italian news daily Corriere Della Sera he planned to cut costs by 15 million euros, or $20.1 million, “because we no longer think we will be able to generate earnings that we had forecast for the next three years” due to the financial crisis.

And, notwithstanding the bailout, Italian employers’ lobby Confindustria said the financial crisis would lead the Italian economy to shrink 0.2 percent this year — from growth of 1.5 percent in 2007 — and contract 0.5 percent next year.

There were also signs of how the Bush administration plans to start spending the $700 billion in bailout money. Speaking before the Institute of International Bankers on Monday, Neel Kashkari, the Treasury’s interim assistant secretary for financial stability, detailed the steps that had been taken since the bailout passed, including working with domestic and international regulators to determine the best method for buying equity in financial institutions to help jump-start lending.

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