THUD ON WALL ST. COULD STILL ECHO AT HOLIDAY TIME
Byline: Sidney Rutberg / Thomas Ryan / Catherine Curan
NEW YORK — Retail, apparel and textile stocks were punished in Monday’s market collapse, but not as severely as high tech stocks and companies with a heavy dependence on international business.
While no one on Wall St. could predict whether the massive free-fall would continue, analysts agreed that if it does, the crucial Christmas selling season is sure to suffer.
After reacting to the slump in foreign markets last week, Wall Street Monday produced its biggest point drop ever, as trading was halted twice in a vain effort to stem the bleeding.
Designer stocks were clobbered, led by the Gucci Group’s 6 9/16 drop to 32 13/16; Polo Ralph Lauren lost 2 3/8 to 24 1/2; Tommy Hilfiger gave up 2 3/8 to 42 11/16; Donna Karan International fell 1 3/8 to 13 7/8; Nautica was off 1 13/16 to 28 1/8 and Mossimo dipped 1/2 to 7 1/2.
Jones Apparel Group fell 3 3/16 to 49 13/16 and Liz Claiborne eased 7/16 to 52 9/16. Retail didn’t fare any better, where heavy losers included Dayton Hudson, down 7 1/2 to 52 3/8; Dillard’s, 3 3/8 to 34 1/8; Nordstrom, 4 7/8 to 54 1/4; Sears, Roebuck, 3 2/8 to 398 7/8; Saks Holdings, 2 3/16 to 20 7/8; Neiman Marcus Group, 2 13/16 to 32 7/16; Kohl’s, 3 5/8 to 62; Federated Department Stores, 2 7/8 to 40 7/8; Gap, 2 1/4 to 49 7/8; The Limited, 2 1/16 to 21 3/8; Mercantile Stores, 2 15/16 to 57 1/4; May Department Stores, 1 5/16 to 51 13/16; TJX Companies, 2 1/8 to 26 15/16 and Wal-Mart Stores, 1 7/8 to 32 3/16.
Among the textile mills, Burlington Industries gave up 1 3/8 to 14; Cone Mills eased 1/4 to 8 1/4; Guilford Mills slumped 1 1/2 to 24 and Unifi dropped a point to 37 3/4.
Those losses pale in comparison to some hits taken by other industries, however. For example, Telecom Brasil dropped 27 5/8 to 89 3/4 and Telefono Mexico fell 7 to 39 9/16. Among the high techs, IBM dropped 8 points to 90 and Compaq Computer lost 8 1/4 to 60 1/2.
It was a day of biggests and worsts and heaviests and firsts.
The drop in the Dow Jones Industrials of 554.26 points easily outlost the 508 point drop on black Monday in l987. However, on a percentage basis, Monday’s drop of 7.18 percent was well below the 23 percent drop on Oct. 19, 1987
Volume on the New York Stock Exchange was the heaviest ever, with the 694.66 million shares changing hands, topping the 680 million shares traded on July 16, 1996.
Declining issues on the New York Stock Exchange overwhelmed advances by 2,988 to 264, or about 19 to 1.
For the first time since trading halts were mandated by the 1987 crash, both the 250 and 550 point thresholds were reached. At 2:35 p.m., trading was halted for half an hour after a 250 point drop on the Dow. When trading resumed at 3:05 p.m., the free-fall continued and by 3:30 the 550 point drop was hit and the market was closed for the day. The trading halts had never been tripped before.
Analysts are questioning what will be the short- and long-term fallout.
“Retailers got it on the chin today about 10 percent,” said Walter Loeb, of Loeb Associates. He said the assumption is that if the market continues to drop, investors will feel poor and thus will not spend as much during the holiday season.
However, Loeb said he is looking for a rebound, noting a one-day drop is a good buying opportunity.
Faye Landes, Smith Barney, also expressed concern about the possible effect on Christmas. Business trends have been pretty favorable, with strong consumer spending, she noted, but if the market doesn’t get a quick bounce, it could hurt holiday sales.
Jeffrey Edelman, Deutsche Morgan Grenfell/C.J. Lawrence, said: “Everybody was waiting for something to happen due to the overextension in the Far East markets. The idea was ‘sell now and think about it later.”‘
Edelman said the market probably could go lower, because “people are talking that way.” But he agreed with other analysts that it is too early to determine the longer term effects of the Far East crisis on U.S. markets.
Edelman pointed out there may be some benefit for U.S. vendors who purchase goods in the Far East, but he doesn’t know how much.
The larger implication from today’s selloff, he noted, is that “it will probably take a little bit of growth out of our economy. But that’s not bad because it keeps prices and interest rates low.”
Asked about the potential effect on Christmas sales, he said, “It’s ironic. We were blaming the hot weather in September [for slow sales]. Maybe this is the next excuse if sales are weak again.”
As a prelude to Monday’s rout in New York, Asian markets were mostly on the downside. The Hong Kong market, which may have started the global slump, saw stocks drop another 5.8 percent, but later in trading on the London market, Hong Kong shares showed a slight recovery. In Shanghai, stocks were up slightly.
However stocks were down to a new low in Tokyo, and South Korea’s market slumped by 3.3 percent to a new low. Singapore stocks were also lower.
“Stocks fluctuate,” said Peter Solomon, head of the Peter J. Solomon Inc. investment firm, adding that is virtually impossible to predict a bounce back since no correction ever resembles previous ones.
However, Solomon doesn’t expect the downturn in Asia to hit the U.S. economy very hard.
“You have to assume that a debacle in Asia will have some effect on the American Economy. It may slow it down slightly, and you immediately go from worrying about inflation and higher interest rates to deflation and lower interest rates.”
Solomon also said a prolonged downturn in the market could hamper Christmas sales, but it would have to be a pronounced decline to counter strong Wall Street gains over the last decade.
“If you have a significant effect of long-enough magnitude, it will affect the marginal purchases, but that doesn’t come from one or two down days. The market’s gone straight up for quite some time.”
Demand for luxury goods is likely to weaken if the sour market continues, according to some analysts.
“If this downtrend in the market continues, the demand for luxury goods will be affected,” said Elizabeth Eveillard, managing director at PaineWebber Inc.
Many analysts attributed the recent surge in luxury goods at retail to strength in the stock market, which has lined the pockets of many investors and also created somewhat of a spend-free attitude. Because spending is closely linked to an individual’s well-being, a more bearish market will likely curb spending, even if that individual has money in the bank.
Solomon, however, said he doesn’t expect the market’s weakness to be particularly harsh on luxury sales at retail.
“There’s enough money in the American economy to buy all of Gucci and everything Saks has to sell. The market has to go down a long way before it affects that,” Solomon said.
John Fitzgibbons, editor of the IPO Value Monitor, said initial public offerings will be put on hold if the downward trend in the market continues.
“We don’t know how far this selloff is going to last and how deep it will slice,” Fitzgibbons said. “In the meantime, the IPO market will just move to the sideline and wait until this correction has played itself out.”
Fitzgibbons said if a bearish market continues, investors will not be in a hurry to invest in a firm that’s loaded with fashion risk.
The long bull market propelled a number of luxury firms in the public arena over the last two years, including Gucci Group, Estee Lauder, Donna Karan International and Polo Ralph Lauren.
“The investor works in three cycles,” Fitzgibbons said. “They buy on hope, hold on greed and sell on fear. Panic has ruled the way for the last week.”
Gilbert Harrison, chairman of Financo, an investment banking firm, said a correction in the U.S. market was anticipated, considering the changes under way in Hong Kong’s currency.
“You must not lose sight of the fact that the Hong Kong market was extremely overvalued and that their government is going to peg the Hong Kong dollar to the U.S. dollar. So a correction was absolutely essential for the long-term future of the Southeast Asian market. Those companies in Southeast Asia that are most vulnerable for a correction are those in which their currency is not pegged to the U.S. dollar.”
Harrison also said that while the drop “seems extraordinarily high, it is still low in comparison to the October 1987 crash. And people can argue that the U.S. market was headed for correction in any event. The U.S. economy is still extremely strong.”
One potentially troubling side effect is a slowdown in retail sales, which would be hurt if the market continues to deteriorate.
“A continued drop would create a psychological effect on a consumers’ buying habits, and that will affect fall and Christmas sales. Psychology is totally subjective,” said Harrison.
Nonetheless, he cautioned that it’s too dicey to predict if the market will rebound or continue its descent.
A Dark Day
Following are closing Monday prices of some key industry stocks, listed in alphabetical order.
American Eagle: down 2 15/16 to 24 7/8, or 10.6 percent
Dillard’s: down 3 3/8 to 34 1/8, or 9 percent
Dayton Hudson: down 7 1/2 to 52 3/8, or 12.5 percent
Federated Dept. Stores: down 2 7/8 to 40 7/8, or 6.6 percent
Gadzooks: down 2 to 21, or 8.7 percent
Gap: down 2 1/4 to 49 7/8, or 4.3 percent
Kohl’s: down 3 5/8 to 62, or 5.5 percent
Limited: down 2 1/16 to 21 3/8, or 8.8 percent
Mercantile Stores: down 2 15/16 to 57 1/4, or 4.9 percent
Neiman Marcus Group: down 2 13/16 to 32 7/16, or 8 percent
Nordstrom: down 4 7/8 to 54 1/4, or 8.2 percent
Paul Harris: down 6 to 20 1/2, or 22.6 percent
Sears: down 3 1/8 to 39 7/8, or 7.3 percent
Saks: down 2 3/16 to 20 7/8, or 9.5 percent
Stage Stores: down 3 3/4 to 33 3/4, or 10 percent
Tiffany Co.: down 5 9/16 to 38 7/8, or 12.5 percent
TJX: down 2 1/8 to 26 15/16, or 7.3 percent
Wal-Mart: down 1 7/8 to 32 3/16, or 5.5 percent
Wet Seal: down 2 1/4 to 22 5/8, or 9 percent
Authentic Fitness: down 1 3/4 to 14 15/16, or 10.5 percent
Donna Karan: down 1 3/8 to 13 7/8, or 9 percent
Estee Lauder Cos.: down 2 9/16 to 39 13/16, or 6 percent
Fruit of the Loom: down 1 1/2 to 26 3/8, or 5.4 percent
Gucci: down 6 9/16 to 32 13/16, or 16.9 percent
Guess: down 7/8 to 8 1/2, or 9.3 percent
Jones Apparel Group: down 3 3/16 to 32 13/16, or 10.4 percent
Nautica Enterprises: down 1 13/16 to 28 1/8, or 6.1 percent
The North Face: down 3 3/8 to 21 1/2, or 13.6 percent
Polo Ralph Lauren: down 2 3/8 to 24 1/2, or 8.9 percent
Revlon: down 2 11/16 to 39 7/8, or 6.3 percent
Russel Corp.: down 1 11/16 to 27 9/16, or 5.8 percent
Tommy Hifiger: down 2 3/8 to 42 11/16, or 4.8 percent