U.S. equities slipped into the red at the market close Monday as investors fretted over the stock market crash in China earlier in the day.
Retail and its related industry stocks took a pounding as investors fled the sector on fears that worsening economic conditions in China – the world’s second-largest economy – would spread across the globe. Additionally, Wall Street was gauging the timing of an interest rate hike later this year as the Federal Reserve begins a two-day conference Tuesday to weigh economic conditions.
As a result, the Dow Jones Industrial Average fell 0.7 percent to close at 17,440 while the S&P 500 shed 0.6 percent to 2,067. The S&P Retailing Industry Group index also lost 0.6 percent to 1,196. The declines in the retail and fashion apparel segments were steep, ranging from 0.5 percent to just over 5 percent.
Pacific Sunwear of California Inc. lost 5.6 percent to close at 82 cents. Bon-Ton Stores Inc. lost 4.4 percent to $4.75 while Sears Holdings Corp. declined 3.4 percent to $21.44 and Hudson’s Bay Co. dropped 3.3 percent to $26.22.
Hanesbrands Inc. fell 2.9 percent to $32.78. The company is set to report earnings on Thursday, and analysts are keeping an eye on the $5.3 billion company’s top line as well as to get a sense of consumer spending patterns in the mass market sector.
Kate Spade & Co. closed the day down 3.4 percent to $18.78, which is near its 52-week low of $18.69. Barclays analyst Joan Payson sees the company continuing to struggle as weak tourism sales in North America continue to cause problems.
On the U.S. manufacturing front, the market appears to have stalled. Michael Montgomery, U.S. economist at IHS Global Insight, noted that the orders for durable goods rose, according to government data released today, but it was mostly for aircraft and machinery, and “not much else,” he said.
“This report does little to either change our understanding of the second quarter or the prognosis for the third,”Montgomery said. “First, it was expected, but additionally it is mostly just random noise fluctuating around total malaise. Average quarterly orders and shipments for core capital goods have sunk for three consecutive quarters after a strong showing last summer.”
Montgomery said second quarter core capital goods orders were 4 percent below the prior year, and “shipments a scant 0.9 percent above a year ago, and heading toward the red quickly. The level of incoming core capital goods orders has lagged outgoing shipments for five consecutive months now and that means manufacturers are living off backlogs.”
This does not bode well for retail spending. Because U.S. manufacturing jobs tend to be better paying ones, weakness in the sector creates more cautious shoppers.