Investors reacted to minutes from the Federal Open Markets Committee meeting last month, which were released today by sending shares up across the board as concerns over the global economy were seen as transitory in the eyes of the Fed.
Moreover, investors thought a recent jobs report might force the Fed to not raise rates until 2016, which buoyed major indices.
Retail stocks also jumped, but the gains were not as robust and were weighed down by a weak comparable-sales report for September and a report from the National Retail Federation that warned of a challenging holiday shopping season ahead.
Minutes from the Federal Reserve committee revealed concern over a slowing global economy and volatility in the stock market. The Fed said in its minutes that the committee discussed the impact of a “material slowdown in economic growth in China and potential adverse spillovers to other economies” and if it would likely “depress U.S. net exports to some extent.”
“In addition, concerns associated with developments in China and other emerging market economies had contributed to a further appreciation of the dollar and declines in prices of oil and other commodities, which were likely to hold down U.S. consumer price inflation in the near term,” the Fed said. “In the United States, equity prices fell, on balance, amid significant volatility and risk spreads for businesses widened. Many [committee] participants judged that the effects of these developments on domestic economic activity were likely to be small, but they acknowledged the risk that they might restrain U.S. economic growth somewhat.”
As a result of these factors, the Dow Jones Industrial Average rose 138 points, or 0.8 percent, to 17,050 while the S&P 500 gained 0.9 percent to finish at 2,013. The S&P Retailing Industry Group Index increased 0.6 percent to 1,218. Earlier in the day, stocks in Europe all finished up, with the FTSE 100 in London rising 0.6 percent to 6,375 and the FTSE MIB in Milan adding 0.9 percent to 22,157. In Asia, China’s Shanghai Index clocked a 3 percent gain to 3,143.
Fashion apparel retail and related stocks showed gains of 1 to 3 percent with notable increases of 14 percent for Avon Products Inc. to $4.33, Bebe Stores Inc. ahead 5.3 percent to $1.20, and Ralph Lauren Corp. up 2.2 percent to $121.23.
Retailers reporting September comparable-store sales posted mostly dismal results as warm weather delayed seasonal purchases and the shift of Labor Day failed to benefit results.
After the market closed, Gap Inc. said its same-stores sales dropped 1 percent for the month. By brand, Gap was flat while Banana Republic fell 10 percent. Old Navy came in with a 4 percent comps gain. Thomson Reuters had analysts’ consensus estimate for Gap Inc. at a negative 1.3 percent with the Gap brand down 6 percent and Old Navy with a 5.6 percent gain. Shares of Gap closed the day up 2 percent to $28.95, but were down 5 percent in after-market trading to $27.50.
Earlier in the day, specialty retailer The Buckle Inc. said comps for the month dropped 6.7 percent over last year, while Stein Mart Inc. delivered a 2.8 percent same-store sales decline. Zumiez Inc.’s same-store sales for the month showed a 1.8 percent drop, which was better than the 7.4 percent decline of consensus estimates. Even warehouse club retailer Costco Wholesale Corp. — usually a standout in monthly sales — said comps were flat. Cato Corp. was a bright spot with a 2 percent gain. And L Brands Inc. was a standout with a 9 percent gain. The company’s Victoria Secret division posted a 9 percent increase while the Bath & Body Works division had an 8 percent increase.
Stein Mart said September sales were “impacted by unseasonably warm weather, one less week of post-Labor Day fall fashion selling and a shift of promotional events, including a shoe and accessories event being moved from September to October.” The retailer also noted that sales in the mid-Atlantic region “were unfavorably impacted by heavy rain associated with Hurricane Joaquin the last week of the period.”
Hurricane Joaquin left many areas in the South — notably South Carolina — with record rainfall and severe flooding. Major retailers including Wal-Mart Stores Inc. closed units in the region, and the recovery has been somewhat slow.
By way of outlook, the National Retail Federation is forecasting that 2015 holiday sales will increase 3.7 percent to $630.5 billion, in what’s expected to be another challenging and mark-down-frenzied season.
While the predicted 3.7 percent gain is significantly higher than the 10-year average of 2.5 percent, it’s a decline from the holiday sales gain in 2014 of 4.1 percent. NRF officials cited slower job growth, deflation, consumer concerns over Middle East conflicts and global economic issues, the presidential campaign, higher rent and health-care costs, and shifts in spending habits toward big-ticket items and services, as deterrents to holiday spending. Those factors are somewhat offset by lower prices at gas pumps.
“It just continues to be a much more competitive environment for retailing,” NRF chief economist Jack Kleinhenz told WWD. With deflation running at about 2 percent, “there’s no pricing power” for retailers, Kleinhenz added.
“The underpinning for growth is more jobs,” Kleinhenz said. “If you get more jobs you get more spending power, but job growth in the first nine months has been on average lower than 2014. We are creating jobs, but not as many as 2014.”
Kleinhenz said last year, an average of 232,000 private sector jobs were created monthly, while this year it’s down to 184,000. “The economy is going forward but the propulsion is less than last year.” Asked about the consumer mood, Kleinhenz said it’s hard to gauge, but he detects “a sort of anxiety, nervousness over a variety of issues, from the war in Syria and conflicts in other areas in the Middle East, the political process in the U.S. and the budget battle which is yet to be decided.
“Similar to last year, in the sense we’re coming off a rather disappointing first half, this holiday season brings to light several cross-currents that still exist for American households,” Kleinhenz said.
To Kleinhenz’s point about jobs, the Fed — with its three senior economists and seven associate economists on staff — has a lot to mull over in the next few weeks. Ozlem Yaylaci and Sara Johnson, economists at IHS Global Insight, said the Fed’s minutes showed that “despite the worries over global volatility — China in particular, the Fed was ready to raise the rates this year. Now with the latest employment data, the Fed is once again in a tight spot.”
“If job numbers for October and November are strong, we still see a December rate hike as the most likely scenario; however, more bad news from the job front can delay the hikes to 2016,” they said.