After recouping nearly half of the losses from two consecutive days of severe bloodletting, investors in the U.S. flipped stocks for a quick profit late Tuesday, which left major indices back in the red.
While retail issues were bruised along with most others, many showed gains.
By comparison, European markets distanced themselves earlier in the day from another steep drop in the Chinese equities market, despite a series of moves by policymakers in China to juice stocks along with the country’s weakening economy.
At the bell on Wall Street, the Dow Jones Industrial Average fell 205 points, or 1.3 percent, to close at 15,666. The S&P 500 closed down 1.4 percent to 1,867 while the Nasdaq finished the day down 0.4 percent to 4,506.
The declines appeared to be mostly from profit-taking, and many retail stocks survived the sell-off, showing increases of between 1 and 3 percent. Notable gainers included Pacific Sunwear of California, which rose 28 percent to close at 60 cents. Bon-Ton Stores Inc. finished the day up 9.7 percent to $3.27 while Quiksilver Inc. increased 6.1 percent to 47 cents.
Other gainers included Aéropostale Inc., which closed up 8.5 percent to $1.28 while Sears Holdings Corp. rose 5.8 percent to $23.25. Still, the S&P 500 Retailing Industry Group index declined, but not as steep as the Dow or parent S&P 500. The retail index closed with a 0.3 percent drop to 1,126.
Europe’s markets all finished the day with significant gains Tuesday, beginning to make back the ground they lost after a week of steep declines, when the continent’s indices dipped in tandem with Asia’s plummeting markets.
While Europe’s indices all got off to a positive start Tuesday — even as Asia’s indices continued to drop — they rose further after the People’s Bank of China cut its benchmark lending rate by 0.25 percent to 4.6 percent, in a bid to boost its economy.
The FTSE MIB in Milan closed up 5.9 percent to 21,649, while the DAX in Frankfurt finished up 5 percent to 10,128. The CAC 40 in Paris had gained 4.1 percent to 4,564, and the FTSE 100 in London rose 3.1 percent to 6,081.34.
China’s Shanghai Stock Exchange Composite Index closed down 7.6 percent to 2,964, while the Nikkei 225 in Tokyo lost 4 percent to 17,806. Hong Kong’s Hang Seng Index had edged up 0.7 percent to 21,404.
European fashion, luxury and retail stocks saw gains across the board. Those that rose the most included Carrefour, 6 percent to 28.61 euros, or $32.88 at current exchange; LVMH Moët Hennessy Louis Vuitton, 5.9 percent to 147.55 euros, or $169.58; Yoox Group, 5.4 percent to 26.92 euros, or $30.94; and Inditex, 5.2 percent to 29.25 euros, or $33.62. British retailer French Connection saw the biggest surge, rising 17 percent to 0.32 pounds, or 50 cents.
The few decliners included Koovs, 2.8 percent to 0.71 pounds, or $1.11, and Italia Independent, 1.4 percent to 28.10 euros, or $32.30. Stocks listed in Asia also fell, with Prada down 1.2 percent to 32.40 Hong Kong dollars, or $4.18, and Esprit losing 3 percent to 6.06 Hong Kong dollars, or 78 cents.
Back in the U.S., a key survey of household sentiment showed that consumers were in an upbeat mood at the start of August. The Conference Board’s Consumer Confidence Index rose 10.5 points. The index now stands at 101.5, up from 91.0 in July. That’s compared with 1985 when the index was at 100. Both components of the index rose as well. The Present Situation Index jumped to 115.1 from last month’s 104.0. The Expectations, a measure of consumer sentiment six months out, increased to 92.5 from 82.3 in July.
The random sampling, conducted by Nielsen, has a cutoff date of Aug. 13 for preliminary results. That means the results reflect consumer sentiment before the stock market’s roller-coaster ride of the last few days.
Lynn Franco, director of economic indicators and surveys at the Conference Board, said, “Consumers’ assessment of current conditions was considerably more upbeat, primarily due to a more favorable appraisal of the labor market.”
Franco added that the “uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved.”
As of early August, consumers who said business conditions are “good” decreased “marginally” to 23.2 percent from 23.4 percent. Those who said business conditions are “bad” fell “modestly” to 17.6 percent from 18.2 percent. The conference board data showed consumers were more positive about the job market, with respondents saying that jobs are “plentiful” increasing to 21.9 percent from 19.9 percent. Those who said jobs are “hard to get” declined to 21.9 percent from 27.4 percent.
On the short-term outlook, respondents who expect business conditions to improve over the next six months rose slightly to 15.8 percent from 15.3 percent. Those who expect conditions to worsen slipped to 8.3 percent from 10.3 percent. The jobs front indicated that consumers were positive about the future, with those anticipating more jobs rising to 14.6 percent from 13.7 percent. Those who said they expect fewer jobs fell to 13.6 percent from 19 percent.
Despite expectations of an improved picture on the jobs front, most consumers didn’t expect much improvement in their incomes. Those who expect their income to rise fell to 16.2 percent from 17 percent, while respondents who said they expected a decline fell to 10 percent from 11.3 percent.
Lei Mao, assistant professor of finance at Warwick Business School in the U.K., said, while the plummets in stock markets are “very serious,” he expects a rebound because the markets have been “oversold.” Longer term for the global economy, there might be issues because “new demand in China is becoming less likely,” and this could lead to the global economy slowing down, he said.
Mao, who said the yuan could devalue further this year, said, “We are seeing capital drain out of the country and companies with exposure to the Chinese market will suffer. Plus, Chinese companies will start exporting more to make up for the lack of domestic demand, facilitated by the weak [yuan], which will put pressure on many emerging markets.”
Chris Christopher, director of consumer markets at IHS Global Insight, said July’s low confidence reading was due to consumers who became “excessively more pessimistic in their economic and financial outlook due to the volatility in equity markets and worries over the so-called headline effects from the financial issues in China and Greece.”
But once the stock market “calmed down” in the last half of July and early August, consumer confidence returned. Which was “assisted by lower gasoline prices and a relatively solid employment report.”
The analyst went on to say that the lesson from Tuesday’s report is that consumer confidence “can react very strongly to stock market volatility and headline effects from China. But, if the U.S. stock markets stabilizes and if the financial news from China calms down, then U.S. consumer confidence can bounce back on fundamentals — lower energy prices, well-received employment reports, a housing market that is gaining traction, and modest consumer price inflation.”
Subsequently, Christopher sees consumer confidence fully rebounding in the fourth quarter, which is “good news for holiday retail sales this year.”
In a separate report, retail sales last week rose 2 percent above their year-ago performance, but failed to build on the prior week’s showing. According to The Retail Economist-Goldman Sachs Weekly Chain Store Sales Index, sales for the seven days ended Aug. 22 were even with those for the prior week with an index reading 583.
“Apparel demand was soft over the past week, while housing-related demand continued to lead the retail pack,” said Michael Niemira, chief economist and principal of The Retail Economist.
In addition to apparel stores, the index pointed to weakness at department, dollar, electronics, grocery and drug stores and wholesale clubs. Online-only retailers, discounters and office-supply stores experienced “modest strength.”
According to Cowen & Co., which gets data from devices that monitor in-store activity, traffic was down 1.8 percent during the seven days ended Aug. 22, better than the 5.6 percent decline of a year ago and the drop of 2.7 percent recorded during the week ended Aug. 15. Hot, dry weather in the Northeast prevented more robust buying of fall apparel and resulted in the weakest regional trends.
During the week, apparel traffic was down 2.5 percent, worse than the 1.6 percent of the prior week. Electronics traffic dropped 1.8 percent, a significant improvement over the 4.5 percent decline of the week ended Aug. 15. Weather Trends International said a heat wave in the Northeast “produced the third warmest comparable week in more than 24 years.”
The U.S. Energy Information Administration said the average price of a gallon of unleaded gasoline was down 7.9 cents last week, putting the average price at the pump 23.7 percent below the same week a year ago.