Market fears are in full force as stocks sold off worldwide, and the safe haven of gold rose.
At midday, the Dow Jones Industrial Average lost 526 points, or 3.4 percent, to 15,486, while the S&P 500 was down 3.6 percent to 1,813. The S&P Retailing Industry Group Index fell 4.1 percent to 1,113.
Most of the retail stocks were trading down between 2 and 4 percent. Industry bell-weather Wal-Mart Stores Inc. was down 3.1 percent to $60.64 while Target Corp. was off 3.6 percent to $66.77. J.C. Penney & Co. Inc. was trading down 7.9 percent to $6.05, while Men’s Wearhouse was declining 6.6 percent to $10. Gap Inc. was down 4.1 percent to $21.78, and shares of Coach Inc. were declining 2.5 percent to $30.39. Nordstrom Inc. fell 2.3 percent to $45.08 while Macy’s Inc. was off 1.7 percent to $38.12. Kohl’s Corp. was down 3.8 percent to $44.64, and Ascena Retail Group Inc. lost 7 percent to $7.24.
Cheap crude oil was the driving factor for the sell-off, which was done by major investors and fund managers. At midday, crude oil was down 6.5 percent to $26.60 a barrel. China’s economic condition also gave investors a reason to dump stocks across the board.
Earlier today, Merrill Lynch Bank of America monthly fund managers survey cited China’s economic slowdown coupled with sinking corporate profits for eroding the confidence of investors.
The survey, which polls more than 200 fund managers that have an aggregate of $610 billion of assets under management, also noted that these global investors have shifted their asset allocations out of equities while increasing their cash holdings. For retail and consumer discretionary stocks, this suggests the market volatility and sell-off will likely continue.
The analysts who conducted the poll said “a net 8 percent of fund managers see the global economy strengthening over the next 12 months – the survey’s lowest reading on this measure since 2012.” But that doesn’t necessarily mean they expect an economic collapse as “just 12 percent believe a global recession will occur in the next 12 months.”
“Investors are not yet ‘max bearish,’” said Michael Hartnett, chief investment strategist of global research at the firm. “They have yet to accept that we are already well into a normal, cyclical recession/bear market.”
The survey also revealed that respondents see the equity markets in Europe and Japan as better bets. “Investors’ bullishness towards Europe remains intact, but conviction is rooted to the floor,” said James Barty, head of European equity strategy at Merrill Lynch Bank of America.
Meanwhile, the continued destruction in oil prices is also wreaking havoc on global currencies, which will eventually begin to affect consumers. The Saudi riyal has been pegged to the U.S. dollar since 1986, but investors have been buying options on the currency that call for the biggest devaluation in two decades. The Saudi central bank is now warning banks about betting against the currency.
The Hong Kong dollar has been pegged to the U.S. dollar for 32 years, but contracts to buy the currency are plunging as well. Market analysts think these currencies may unhinge from the dollar similar to the way China separated the yuan from its dollar peg.
And the Russian ruble is now below levels hit during the ruble crisis in 2014. The Russian economy is very dependent on oil prices and as a result investors are worried about the country’s ability to weather this storm.
Some investors zeroed in on the Redbook chain store sales to see if the American economy is strong enough to withstand these negative market forces. Unfortunately, sales were soft in the Jan. 16 week. Same-store sales came in at 1.4 percent, which was lower than last year’s 1.7 percent. The report suggests that shoppers are now done with clearance sales and reverting back to basic spending.
In other economic news, the consumer price index slipped 0.1 percent as gas prices fell, but the costs of services rose. The Federal Reserve had targeted inflation to rise 2 percent, but that number is looking harder and harder to reach. Apparel makers are one group that has struggled with the issue of low prices. So while low prices are great for consumers, it isn’t great for the businesses trying to sell their products.
Gold jumped 1 percent to $1,099 per ounce.