By  on October 2, 2009

A third straight day of declines in retail shares suggests the easy money’s been made on Wall Street and both investors and merchants are going to have to work harder for their gains from here on out.

On Thursday, the S&P Retail Index had its worst showing in a month, falling 1.9 percent, or 7.10 points, to 370.40 — a level still 65.9 percent above early March, at which point the financial crisis had exacted its heaviest toll on stocks, if not necessarily on employment.

Now that shares in the retail sector have bounced back a bit, they’ve hit a ceiling of sorts and investors are going to be less understanding of dismal results as comparisons with a year earlier get easier and a year’s worth of cost cutting at stores has a chance to take hold.

“The first leg of the recovery in stocks may be behind us,” said Howard Tubin, specialty store analyst at RBC Capital Markets. Investors bought into weakness in the market this year in the hope of improved, or at least stabilized, earnings results and better trends in same-store sales at the end of the year.

“We’re at that inflection point,” Tubin said. “The stocks have traded on anticipation of that happening. Now we need to see this come through in the numbers.”

For the rest of this year, investors might be content with continued hints the retail environment is improving. “[Next year] becomes a different story,” Tubin said. “Same-store sales need to start to improve.”

And investors are becoming more selective.

“It’s a stock picker’s game at this point — you can’t just buy the sector,” said Marie Driscoll, equity analyst at Standard & Poor’s. “Now you’ve got to earn your gains.”

Driscoll said money that had been stashed away for safe keeping was flowing back into the equity markets, helping the whole market, but she cautioned the consumer wasn’t going to lead the economy as it exits recession.

In many cases, retail has become a waiting game. Companies have done the cost cuts they began when the scope of the recession became clear. The hope is that consumer spending will return before they have to trim again.

The bind retailers are in was evident in Saks Inc.’s shares Thursday. Charles Grom, an analyst with J.P. Morgan, downgraded the luxury retailer’s stock to “neutral” from “overweight” Thursday, offering a rationale that could apply to any number of companies: He said the stock had reached his target price and, while Saks could keep trimming expenses, the easy cuts had already been made. He also said luxury sales should recover, but the question was when.

“We think the easy money has been made,” he said, a phrase that surfaced repeatedly among analysts.

Shares of Saks slid 6.7 percent to $6.36. Also on the decline were Zale Corp., down 9 percent to $6.51; AnnTaylor Stores Corp., 7.4 percent to $14.72; J. Crew Group Inc., 5.9 percent to $33.70, and Macy’s Inc., 4.7 percent to $17.43.

The Dow Jones Industrial Average gave back 2.1 percent, or 203 points, for the day to close at 9,509.28.

Stocks were pushed and pulled by a bevy of economic reports Thursday that gave retailers cause for both caution and optimism.

Initial claims for unemployment benefits rose 17,000 last week to a seasonally adjusted 551,000, according to the Labor Department, which will release its closely watched monthly jobs report today. Economists project the country lost another 187,000 jobs last month and that unemployment will rise to 9.8 percent from 9.7 percent.

The American Bankers Association said payments on 3.35 percent of loans in its composite index were at least 30 days overdue in the second quarter, up from 3.23 percent in the first quarter, after adjusting for seasonal variations.

“Falling behind on debt payments is an unfortunate side effect of high unemployment and a frozen job market,” said the group’s chief economist James Chessen. “The picture won’t change until the labor market improves and the economy picks up steam. This is going to take time.”

The Commerce Department, however, said August personal consumption expenditures rose 1.3 percent from July, with help from the cash-for-clunkers auto incentive program.

And the Institute for Supply Management said economic activity in the manufacturing sector expanded for the second straight month in September.

“It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance,” said Norbert Ore, chair of the institute’s manufacturing business survey committee.

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