Specialist Meric Greenbaum works on the floor of the New York Stock Exchange. The stock market closed sharply lower, extending a weeklong slide, as the Dow Jones industrial average plunged more than 600 points. Some investors believe the market can recover, noting that both global economic growth and corporate earnings remain strong. One hallmark of this bull market has been investors' willingness to buy the dips. This week's drop could test their resolveMarkets Return of Fear, New York, USA - 02 Feb 2018

Any dreams of a smooth and steady 2018 to aid in retail’s recovery seem to be fading fast.

The 666-point drop in the Dow Jones Industrial Average on Friday, which was fed by inflation fears, whipped around the world, sent markets down from Tokyo to London and whipped back to New York to hit Wall Street even harder a second time.

Retailers have been hoping for a relatively quiet period that would help them adjust their businesses to thrive in a more digital world. But the selling continued on Wall Street and grew worse on Monday. 

Blue Chip stocks plummeted 1,175.21 points, or 4.6 percent, to 24,345.75 — the worst point drop on record for the Dow, which repeatedly charged to new highs last year.

Among the decliners in fashion and related stocks were: Macy’s Inc., down 5.7 percent to $23.47; Sears Holdings Corp., 5.5 percent to $2.22; J.C. Penney Co. Inc., 5.4 percent to $3.35; Gap Inc., 4.8 percent to $30.56; Tiffany & Co., 4.5 percent to $100.74; Under Armour Inc., 4.4 percent to $11.87; and Walmart Inc., 4.2 percent to $100.09.

Losing ground on the international scene were: Tod’s, down 2.3 percent to 59.50 euros; LVMH Moët Hennessy Louis Vuitton, 2.2 percent to 242.45 euros; Salvatore Ferragamo Italia, 2 percent to 22.28 euros; and Hermès International, 1.6 percent to 436.10 euros.

Adding to the unease was the long-awaited Chapter 11 filing of Bon-Ton Stores Inc., which succumbed to a better-than $1 billion debt load. The regional department store is going to use the bankruptcy process to explore its options, including a possible sale of the company.

Bon-Ton’s failure was long expected and not connected to the Wall Street rout, but together the developments serve as a reminder — if any were needed — that the path retailers must take forward remains winding and difficult, or at least more difficult than stock traders would have one believe.

A mixture of consumer confidence and enthusiasm for corporate tax reform, which President Trump signed just before Christmas, seems to have helped heat up, or overheat, the market, even if it’s not clear just what impact the tax changes will have on individuals.

Prior to the decline on Friday, the Dow had risen 59 percent over two years — giving a sharp boost to what’s been a nine-year bull market.

“The stock market basically reflects expectations that have gotten ahead of reality, at least the economic reality,” said Frank Badillo, director of research at Macro Savvy.

“The expectations reflect a lot of the optimism and confidence that we see in some of the consumer sentiment numbers, particularly among Boomers and older generations,” Badillo said. “But that confidence and the expectations don’t necessarily reflect some of the economic fundamentals where, yeah, there’s been some decent job growth…the outlook for investment is looking very positive given tax reform…but that investment in job gains aren’t enough to power the kind of jump that we’ve seen in the stock market. So it’s not unexpected to see some kind of correction in the stock market.”

Badillo said confidence is much more mixed among younger consumers.

Retailers are expected to spend at least part of their considerable tax windfalls on their workers and investments to rejigger their businesses, but on the broader scene, Badillo said the Federal Reserve remains concerned about rising prices.

To keep prices in check, the Fed is expected to continue to raise its benchmark federal funds interest rate, which took three steps up last year and now stands at a rate of 1.25 percent to 1.5 percent. Higher interest rates tamp down both inflation and the market. Declines spook investors and consumers, particularly wealthier shoppers who are more likely to have significant investments.

And amid it all the Fed has a new hand on the wheel — Jay Powell was sworn in as chairman Monday, taking over from Janet Yellen.

Following the ceremony, Powell said “our financial system is now far stronger and more resilient than it was before the financial crisis that began about a decade ago,” but added, “My colleagues and I will remain vigilant, and we are prepared to respond to evolving risks.”

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