Retail stocks gained back some ground Friday, rebounding 2 percent, but the broader market remained volatile as investors continued to question the strength of the recovery and the impact of Europe’s financial crisis.
This story first appeared in the May 24, 2010 issue of WWD. Subscribe Today.
The S&P Retail Index increased 8.59 points to 436.40, but still ended with a 4.1 percent drop for the week. The Dow Jones Industrial Average, which briefly fell below 10,000 Friday morning, closed at 10,193.39, a 1.3 percent gain on the day that reduced its decline for the week to 4 percent. When the markets closed Thursday, the four-day drop was 5.2 percent.
Of the 172 stocks tracked by WWD, 151 fell for the week, while 18 rose and three held steady.
“The stock market got a bit ahead of the recovery,” said Frank Badillo, senior economist at Kantar Retail, noting the rebound lately had been helped along by government stimulus.
“[Markets] were poised for something to bring them back to reality and I think that’s where the Eurozone problems were more than enough sobering news,” he said.
Greece’s budget woes have opened up a rift in Europe, where countries are divided by language barriers and local governments, but are all in the same economic boat, tied to the euro. The currency hit a four-year low last week, but rebounded some on Friday, closing at $1.2559.
“My expectation is that these problems are probably going to leave some scars on the [U.S.] recovery, but it shouldn’t be enough to choke the life out of the recovery,” Badillo said.
Most of the retailers posting first-quarter results last week showed nice bottom-line increases, including Aéropostale Inc., Buckle Inc., Gap Inc., Saks Inc., The TJX Cos. Inc. and Wal-Mart Stores Inc. The sector in general had been aided by a typical postrecession bounceback as sales increases were amplified by tighter cost bases and better inventory controls.
But outlooks for the second quarter and beyond generally sounded notes of caution, feeding into investors’ worries. Markets were also rattled Thursday by an unexpected jump in weekly jobless claims, which rose by 25,000 to a seasonally adjusted 471,000.
European investors pushed the CAC 40 down 4 percent to 3,430.74 in Paris last week, as the FTSE 100 dropped 3.9 percent to 5,060.54 in London and the DAX slipped 3.4 percent to 5,829.25 in Frankfurt. Asian investors traded the Nikkei 225 down 6.5 percent to 9,784.54 in Tokyo and the Hang Seng Index down 3 percent to 19,545.83 in Hong Kong.
In addition to keeping a close watch on Europe and the euro, investors this week will be eyeing Tuesday’s Consumer Confidence Index from The Conference Board, as well as waiting for Friday’s Commerce Department report on personal income and outlays.
IHS Global Insight U.S. economists Patrick Newport and Nigel Gault said the report would “probably show that real and nominal consumer spending were flat in April, and that year-over-year core inflation slipped to a 37-year low.”