A severe decline in the Shanghai index coupled with a drop the price of crude oil that put it below $30 a barrel triggered a volatile trading day and sent global stocks plummeting.
But the retail sector fared better than other market segments as investors weighed a U.S. retail report that showed consumers spent money on eating out and buying furniture. Reports of a 0.4 decline in U.S. industrial production sent a shiver down the spine of Wall Street. Also weighing on the minds — and trading algorithms — of investors was Wal-Mart Stores Inc.’s bombshell revelation of numerous store closures in the U.S. and abroad.
The Dow Jones Industrial Average lost 391 points, or 2.4 percent, to close at 15,988 while the S&P 500 fell 2.2 percent to finish at 1,880. The S&P Retailing Industry Group Index dropped 1.8 percent to close at 1,153. Since the beginning of the year, the Dow has lost 1,417 points, or 8.1 percent. The S&P 500 is off 6.6 percent so far this year while the S&P Retailing Industry Group is down 8.6 to date.
Notable decliners today included The Bon-Ton Stores Inc., down 12.6 percent to $1.52; Lands End Inc., 6.8 percent to $21.89, and Vince Holding Corp., 9.2 percent to $4.03. Also losing ground were Coach Inc. with a 1 percent drop to $31.43; Ralph Lauren Corp. with a 0.4 percent decline to $100.68, and Target Corp. dropping 0.5 percent to $70.08.
Gains were few, but included Revlon Inc. with a 11.6 percent gain to $28.08 on news of the company seeking “strategic alternatives.” Also perking up were Fossil Inc., up 1.6 percent to $30.57; Express Inc., 0.6 percent $16.46, and Macy’s Inc., 0.6 percent gain to $37.87.
Collectively, the data and reports suggest a slowing economy, which further gives bearish investors reason to dump stocks.
Propping up retail stocks was a National Retail Federation report that said holiday sales — by their measure — rose 3 percent, which is below its forecast of a 3.7 percent gain, but still reflected a gain. Still, year to date, U.S. equities are sharply down — with retail stocks taking the brunt of the declines.
Economic reports confirmed what retailers had been saying all along, that December retail sales were down 0.1 percent from November. Analysts had estimated sales would be up 0.4 percent. The Commerce Department said on Friday that while retail sales were up 2.1 percent for 2015, consumers opted not to spend their gas savings in December even if it was the holidays. Clothing sales were down 0.9 percent for the month but so were electronics and appliance sales. Furniture stores and sporting goods stores showed increases.
“December retail sales were considerably weaker than expected. It seems that after broad-based gains in November, consumers took a break. There were sizable gains in several retail channels in the last month of the year, such as furniture, building material, sporting, online and restaurants,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight. “The unseasonably warmer December weather did some serious damage to clothing store sales since shoppers were not willing to fork over money for the latest winter fashion. However, an unseasonably warmer December assisted building material and garden supply stores since many households were willing to do those home improvement projects.”
Christopher said gasoline station sales took another hit, as pump prices declined. Electronic stores have been in negative territory for every month in the last quarter of 2015, since many shoppers are buying the latest gadgets and smartphones online. He said Americans are using their pump price savings to go out to eat, which in turn cannibalizes grocery store sales. Restaurant sales have been growing strong and were up 0.9 percent in December.
“This report is somewhat disappointing, but caution is needed,” Christopher added. “The retail sales report is not adjusted for consumer price increases. Quarterly consumer good prices excluding food and energy has been in negative territory on a year-over-year basis since the second quarter of 2013, and the third-quarter inventory build of 2015 caused many retailers to come out swinging in early November with price discounts and promotions. Looking ahead, consumer spending growth is likely to be relatively robust and the consumer is still doing most of the heavy lifting in the U.S. economy.”
Crude oil continues its slippery downward slide and has broken the key $30 a barrel price. Iranian oil is about to enter the market causing even more supply of crude oil. Crude oil closed down 4.8 percent to $29.71.
News of Wal-Mart Stores Inc. closing 269 stores including 154 in the U.S., 16,000 employees in the U.S. also added to the selloff. The stock closed the day down 1.8 percent to $61.93. And Sears Holdings Inc. is joining Wal-Mart as it also right-sizes its portfolio of stores. Sears said it was closing four Kmart stores in California in March and April. Sears had 952 Kmart stores at the end of October. Sears closed down 3.4 percent to $17.14.
Earlier in the day in Europe, stocks reacted to a drop in Asian equities. The FTSE 100 in London fell 1.9 percent to close at 5,804 while the CAC 40 in Paris lost 2.4 percent to finish at 4,210. The DAX in Franfurt lost 2.5 percent to 9,545.
In Asia, the Shanghai Composite finished the week at its lowest level since last summer’s stock market rout. On Friday, the Chinese index fell 3.6 percent to just over 2,900. The market, though always volatile due to an over-reliance on retail investors, has fluctuated particularly wildly in the first two weeks of trading for 2016.
This fall below the psychologically important level of 3,000 will test the resolve of Chinese authorities, who have paid lip service to the idea of nonintervention but have been unable to restrain themselves in the past. Market watchers are expecting international volatility to continue.
Tokyo’s Nikkei 225 dropped 1.5 percent to 17,147 while Hong Kong’s Hang Seng slid 1.5 percent to 19,521.