Time to batten down the hatches.
For equity investors, last week’s stock market declines have set the stage for a volatile year that will likely be marked by major corrections and concerns of slower-than-expected global economic growth — including in the U.S., which had its gross domestic product outlook downwardly revised last week by economists and federal policymakers.
And for fashion apparel retailers, a cautious consumer-spending environment might be the biggest headwind faced.
This past week, China’s weak yuan, cheap crude oil, sagging growth in emerging economies and a slackening in the U.S. industrial sector created a perfect storm on Wall Street not seen since last August when Chinese stocks crashed and Greek fiscal woes sent investors scurrying.
In August, some market sectors were spared. This time around the losses were global in scope with the S&P 500 losing about $1 trillion in market capitalization this past week. And a positive jobs report did little to quell fears on Wall Street, which punished the retail sector by sending stocks deep into the red.
For the week, the Dow lost 1,079 points, or 6.2 percent while the S&P 500 retreated 6 percent. The Nasdaq closed the week with a 7.3 percent decline. The S&P Retailing Industry Group ended the week down 6.7 percent.
On Friday, the WWD Global Stock Tracker fell 1.8 percent to 104.15, which is a three-month low and close to the 52-week low set last August. There are now more decliners than gainers in the tracker. For the one-year period, 34 stocks have gained while 66 have declined. The top gainers include Kose Corp., which is up 123 percent to $88.12, and Yoox Net-a-porter Group with a 80 percent increase to $34.10. Pandora A/S is up 68 percent to $128.79.
The one-year decliners include the much-scrutinized Iconix Brand Group with an 84 percent drop to $5.37 and Vince Holding Corp. with an 82 percent decline to $4.48. The Bon-Ton Stores Inc. is down 75 percent to $1.75.
The dizzy week on Wall Street is likely to repeat itself in the weeks ahead as market bears will continue to key into China’s fiscal concerns, the declining yuan and cheap gas and its spreading impact on global markets. That means more volatility. There’s also murmurings that the credit market is tightening up, which will further impact stock prices.
In the Securities Industry Financial and Financial Markets Association outlooks survey, respondents noted that “the main area of concern was the negative impact of a downshift in global economic growth and the stronger U.S. dollar.”
The survey researchers said those polled “also cited the Fed raising rates too much and/or too quickly as a risk to the downside. Other potential downside risks noted included further weakening in the manufacturing sector, oil price volatility and geopolitical risks/shocks.” As a result, credit markets are expected to tighten, which precedes declines in equity prices.
Regarding China’s financial issues and its influence on equities, one analyst said there are concerns brewing. Michael G. Thompson, managing director of global markets intelligence at S&P Capital IQ, said “the U.S. stock market appeared to be taking its directional cues from the Chinese stock market. This observation overlooks the fact that investors are starting to take notice of prevailing mixed signals emanating from the U.S. economy.”
Thompson noted record-setting automobile sales, but this occurred as U.S. industrial production continues to fall. “Although the pace of job creation and light vehicle sales continues to be quite strong, industrial production and retail sales simultaneously don’t match up,” Thompson explained. “The stark divergence between industrial production and automobile sales in particular, which at face value would normally be closely related, is striking.”‘
Thompson said U.S. retail sales “have also displayed divergent economic data.”
“The year-over-year rate of change for total headline U.S. retail sales have slipped below a 2 percent growth rate for the past two months, which traditionally might be interpreted as foreshadowing growing risks of recession for the U.S. economy as it approaches a potential stalling rate,” Thompson said. “But if we exclude the negative influence of highly volatile and declining gasoline service station sales, as well as the positive influence from historically strong auto sales, the resulting growth rate of what we consider to be a more core reading of retail sales is much healthier at 3.4 percent and 3.6 percent in October and November, respectively.”
Thompson said under normal conditions, the analysis would conclude with a “healthier picture portrayed by retail sales excluding gasoline sales, but such optimism does ignore the fact that the U.S. consumer continues to save, rather than spend, most of the windfall from steep declines in household energy-related expenditures.”
For fashion apparel retailers, getting consumers to spend those savings will be a challenge moving forward. This past week, retail analysts were hoping gift card redemptions would help boost sales. Meanwhile, specialty apparel retailers can blame warm weather in November and December for lousy sales.
Planalytics Inc. said in their market report Friday that the “latest analytics show the total weather impact on apparel specialty stores was a negative $572 million” from Nov. 1 through the end of the year compared to the same period last year. The results exclude sales at department stores, discounters and online.