Stock rally, day two.
Wall Street rallied Wednesday as comments from the New York Federal Reserve president William Dudley indicated a rate hike was “less compelling” now than it was last month as recent stock market declines reverberate through the economy. Investors also eyed an upwardly revised real gross domestic product growth gain of 3.7 percent for the second quarter from an initial reading of 2.3 percent.
As a result, the Dow Jones Industrial Average rose 369 points, or 2.3 percent, to 16,654, while the Standard & Poor’s 500 increased 2.4 percent gain to 1,987. The S&P 500 Retailing Industry Group finished the day up 2.2 percent to 1,203. Major indices in Europe and Asia, including China, also closed with significant gains. The gains followed severe declines earlier in the week.
In the U.S., fashion apparel and retail stocks were riding the Wall Street wave, and showed gains of 3 to 6 percent across most of the sector. And there were also some big gainers. Movado Group Inc. finished up 21.5 percent to $27.11 following a solid quarterly report. And Destination XL Group Inc. ended the day with a 19.9 percent gain to $5.27 on strong quarterly results as well.
Sears Holdings Corp. increased 12.5 percent to $27, while Bon-Ton Stores Inc. closed up 14.4 percent to $3.65. However, investors were taking profits on at least two retailers today following strong gains to its stocks yesterday: Express Inc. fell 1.3 percent to $19.99 while Abercrombie & Fitch Co. shed 0.2 percent to $18.86. Both reported better-than-expected profits on Wednesday.
In Europe, markets all finished the day having made significant gains Thursday. The FTSE 100 in London climbed 3.6 percent to 6,192, while the CAC 40 in Paris and the DAX in Frankfurt both gained 3.5 percent to 4,658 and 10,315 respectively. The FTSE MIB in Milan finished up 3.5 percent to 22,227.
Fashion, luxury and retail stocks had an upbeat day, too. Among the highest risers were Yoox Group, 4.9 percent to 28.28 euros; LVMH Moët Hennessy Louis Vuitton, 3.6 percent to 151.15 euros; Hermès, 3 percent to 321.95 euros and Tod’s, 4.5 percent to 83.80 euros. The few stocks that fell were French Connection, 0.4 percent to 0.32 pounds; Mulberry, 1 percent to 9 pounds and Jimmy Choo, 0.5 percent to 1.67 pounds.
And as to whether the stock markets’ wild fluctuations are impacting consumer behavior in Europe and the U.K., George Wallace, chief executive officer of European retail consultancy MHE Retail, acknowledged that the turmoil is “never a good thing,” particularly in terms of how it’s presented to consumers. “The media tends to dramatize things a little bit, it’s always ‘armageddon’ and ‘meltdown,’” noted Wallace. However, he sees the volatility in a less worrying context. “It’s a significant [market] correction, but the FTSE 100’s still hovering around 6,000 and it’s not like the Dow Jones has absolutely gone through the floorboards,” he said.
Instead, he said, the majority of consumers are more concerned with “what they have got in their bank account in terms of their wages.”
“People’s wages [in the U.K.] have started to grow for the first time in quite a long time – in my view, that’s got a bigger impact than something that’s happening in the financial markets,” said Wallace. “Most people don’t have money in the markets, it’s a very small proportion of the population [who do.] If people feel their wages are going up, they feel a bit better off,” he said. “I don’t sense that this market correction is going to have a huge impact [on U.K. consumers],” said Wallace.
And one upside to the turmoil for the general consumer, Wallace noted, is that it has postponed the likelihood of interest-rate rises. “It’s almost certain there won’t be an interest-rate rise in the course of this year, and that’s good for consumers with debt, which is pretty much most people,” he said. “With that compensating side of it I don’t think that it’s such bad news [for the U.K. consumer.]”
But conversely, Wallace said that for luxury brands operating in China, the “chill” felt from a slowdown in luxury spending in China “would get worse.” “This is the crescendo of a trend that’s been going on for the past 18 months,” he said of the Chinese economy’s slowdown. “Both the reality and the sentiment for global luxury brands will be quite negative,” he said.
In Asia, the Shanghai Composite Index finished in positive territory for the first time this week on Thursday, up 5.3 percent at the end of trading.
After days of dramatic fluctuations, the Index remained steady for much of the day, in the late afternoon rising above 3,000, commonly thought of as an important psychological marker for the market, and staying there to finish at 3,084. The smaller Shenzhen Composite added 3.3 percent, boosted by reports that the government plans to announce new measures Friday morning to prop up the market.
In Hong Kong, the Hang Seng Index also perked up, closing up 3.6 percent, with some stocks adding more than 14 percent.
Regarding the GDP revision and interest rates, Nariman Behravesh, chief economist at IHS Global Insights, said, “While these numbers show an economy that could absorb an increase in the federal funds rate in relative stride, the volatility of equity markets worldwide is likely to give the Federal Reserve pause. We expect that recent events increase the probability that the Fed will postpone liftoff and make the first move in December rather than September.”
One area of particular concern is inventory levels. Behravesh said with inventories continuing to “build unsustainably, the correction will undoubtedly impact growth in the third quarter, and perhaps the fourth. It is too soon to tell if recent unpredictability in world financial markets will result in a sharp adjustment as businesses react quickly to fears of holding significant excess inventory in such an environment.”