The third straight monthly rise in consumer confidence boosted retail stocks Tuesday and helped the sector fight back into positive territory following a very weak start, when the market plunged to levels not seen since October.

This story first appeared in the May 26, 2010 issue of WWD. Subscribe Today.

The S&P Retail Index fell as much as 2.7 percent before rebounding to 440.60, a gain of 1.4 percent, or 5.99 points, for the day.

Trading started on a down note with renewed tensions on the Korean Peninsula prompting a sell-off in Asia that continued in Europe, where investors are still trying to gauge the impact of budget troubles in Greece and Spain and the associated weakness in the euro.

The Dow Jones Industrial Average sank to a seven-month low of 9,774.48 before regaining much of the lost ground and ending down 0.2 percent, or 22.82 points, at 10,043.75. The index has dipped below the 10,000 mark several times in recent weeks, but has not closed below it since Feb. 8.

“It’s going to continue to be volatile,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “There’s really no new news here. It’s just the fact that the momentum has been down and the market is looking for an excuse to keep that going.”

Fitzpatrick said there was a disconnect between macroeconomic fears, such as the threat posed by Europe’s debt troubles, and the health of the business sector. “Eventually, the market will move on fundamentals as profits go up, as M&A activity picks up and as companies continue to produce better results,” he said.

Most retailers have posted strong first-quarter earnings this month, but remained cautious about expectations for the current quarter and the rest of the year. Among the retailers gaining ground Tuesday were AnnTaylor Stores Corp., up 4.4 percent to $22.10; The TJX Cos. Inc., 3.2 percent to $45.35; Urban Outfitters Inc., 2.1 percent to $36.50, and Nordstrom Inc., 1.9 percent to $38.33. Decliners included American Apparel Inc., down 5.8 percent to $1.31; Hot Topic Inc., 4.4 percent to $5.66, and Zale Corp., 3.6 percent to $2.68. Zale is scheduled to report figures for its just-concluded third quarter today.

For now, at least, it appears shoppers are on board with the recovery.

The Conference Board’s Consumer Confidence Index rose to 63.3 for May from 57.7 last month. Both components of the index saw gains, with the Present Situation Index inching up to 30.2 from 28.2 and the Expectations Index jumping to 85.3 from 77.4.

“Consumers’ apprehension about current business conditions and the job market continues to slowly dissipate,” said Lynn Franco, director for the research group’s Consumer Research Center. She noted the index, although still weak by historical levels, seems to be gaining some traction.

Franco said the improvement has been fueled primarily by “growing optimism about business and labor market conditions.”

Maury Harris, economist at UBS, noted the expectations component of the index, which showed the larger jump, “tends to correlate more closely with trends in real consumer spending growth.”

The percentage of consumers who said they expect business conditions to improve over the next six months rose to 23.5 percent from 19.7 percent, while those who anticipate a worsening environment decreased to 11.5 percent from 12.4 percent. In addition, the percentage of consumers who expect more job opportunities ahead rose to 20.4 percent from 17.7 percent. Moreover, the respondents who expect an increase in their incomes rose to 11.3 percent from 10.5 percent.

Current expectations also rose somewhat, with the number of respondents expecting conditions to be “good” rising to 10 percent from 8.9 percent. Those who said jobs were “hard to get” fell to 43.6 percent from 44.8 percent.

Asian investors pushed the Hang Seng Index down 3.5 percent to 18,985.50 in Hong Kong and the Nikkei 225 down 3.1 percent to 9,459.89 in Tokyo.

The region was fixated on worsening relations between North Korea and South Korea, which cut off trade ties with the north this week and has been ratcheting up the aggressive rhetoric following the sinking of a South Korean warship.

In Europe, the CAC 40 was off 2.9 percent to 3,331.29 in Paris, the DAX fell 2.3 percent to 5,670.04 in Frankfurt and the FTSE 100 slid 2.2 percent to 4,957.80 in London.

The troubles in European economies have raised concerns about the euro, which inched up 0.2 percent to $1.2362 Tuesday afternoon, but is down 18.4 percent from its 52-week high. Investors have been favoring safer places to park their money during the market turmoil, pushing gold prices up $9.50 to $1,204 an ounce, close to the 52-week high of $1,250.

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