WASHINGTON, November 12, 2015 – Stocks got slammed across the boards Thursday morning in a nasty follow-through to Wednesday’s negative but holiday-influenced low volume downer of a trading day. As we write this, close to 11 a.m. EST, the Dow is off nearly 1 percent at a negative 147.82; the broader based S&P 500 is off 13.15, over ½ of 1 percent; and the NASDAQ has been hit for a roughly .35 percent loss, down roughly 19 points.
Crude Thursday prices for crude
The reasons for all the negativity, which is at least for now derailing our unusually early but still-embryonic Santa Claus Rally, are broad and deep. Chief among them is the once-again rapidly declining price of crude oil, with West Texas Intermediate (WTI) down 64 cents at $42.99 bbl., and Brent crude—the international standard—off 58 cents at $45.23 bbl.
This renewed selling of crude oil, due to the continuing build of oil stocks which is due in major part to the aggressive Saudi move to shore up its market share no matter how many fellow OPEC countries it drives into insolvency.
The oil-glut/price drop is causing renewed deflation panic, which, oddly enough, might make those panicking at possible rate increases from the U.S. Fed breathe a bit easier in coming days.
Federal Reserve policy merry-go-round
We might (or might not) get more clarity on this starting today as various Fed members begin another round of their usually contradictory speechifying. We’d probably be better off if they all shut up, but that’s probably too much to ask as they, like everyone else associated with the Federal government are clearly smarter than the rest of us, as our wonderfully robust economy proves every day.
Macy’s, brick-and-mortar retail: End of life sale?
The other big news item that’s really spooked the market is a generalized fear that U.S. retailers are about to experience their worst holiday sales quarter ever. (Or so we’re told.) A lot of this is the result of continuing terrible sales numbers and a worse holiday sales projection coming out of bellwether department store/retailer Macy’s (symbol: M) heretofore invulnerable CEO Terry Lundgren.
Macy’s is stuck with fire-sale amounts of winter inventory, all of which America’s Green Meanies, the environmentalist whackos, will instantly blame on global warming climate change, pretty much the way they blame all the world’s ills on that same unproven phenomenon.
To be sure, at least here on the east coast, autumn weather thus far hasn’t exactly inspired families to go out and purchase mass quantities of boots, coats and mittens. But neither have Macy’s prices.
For some reason, Lundgren seems to have been following a Jayvee version of the “everyday low prices” playbook that nearly destroyed JC Penneys (JCP) a few years back. For better or worse, after decade upon decade of phony sales prices, fake markdowns and acres of newsprint devoted to coupons good for more fake sales, generations of American consumers have learned, quite simply, to never buy anything at a retail store until and unless it’s marked down in a fake sale.
As JCP learned all too well, about the only store that’s ever made “everyday low pricing” really work is Trader Joe’s, and they’re in an entirely different area of retail. Otherwise, the general public figures that “everyday low prices” are simply full retail prices in disguise. They want and expect the damned coupons and the weekly “doorbuster” specials they’ve been taught to wait for for decades. You can’t fool them, Terry.
More problematic for Macy’s, however, as well as traditional brick-and-mortar retailers is the increasingly dramatic erosion of sales caused by online shopping which by now has gone entirely mainstream.
The Maven himself has been going more and more with Amazon.com (AMZN) despite his inherent trust of coastal high-tech libs like Jeff Bezos, et. al. Why? Because Bezos and company “stock” unimaginably massive inventory, price it very aggressively, ship stuff quickly, and stand behind their business. Just like most retailers used to do, only a lot better.
As the Wall Street Journal noted in an article Thursday morning, Terry Lundgren seems to have noted the irony, observing
“…that while consumer spending seems healthy, many shoppers are buying goods and services that department stores don’t carry, such as cars, electronic gadgets and home improvement items.”
The brick-and-mortar guys have almost uniformly failed to respond to this aggressive and unexpected sea change in retail. From Sears and K-Mart (both traded under SHLD) to Walmart (WMT) to (until recently) Best Buy (BBY) and beyond, brick-and-mortar just isn’t delivering anymore compared to Amazon, Zappos, and even more traditional catalogue retailers like Lands’ End (LE, once wholly-owned by SHLD which didn’t know what to do with it and spun it back off) and outdoor outfitter L.L. Bean (privately held).
Add this increasing competitive disadvantage to a tapped out and frustrated consumer environment, where still-extraordinary levels of U.S. joblessness are concealed by phony, administration-helping unemployment numbers, and you have a perfect retail storm.
Which is why retail, too, is tanking big time, at least for now. Macy’s itself has been in a prolonged swoon for at least the bulk of 2015. That’s been strongly reflected in the price of Macy’s shares, as the Wall Street Journal noted:
“By Wednesday afternoon, shares of Macy’s fell 14% on the news, to $40.44; the stock has dropped nearly 40% this year.”
So, with the world being drowned in “peak oil” courtesy of the ham-fisted Saudi princes, the U.S. shale drillers and the evil Iranian oil combine slowly coming back on line; the 2015 implosion of traditional retail as recently exemplified by the action in M; and the continuing selloff in healthcare and biotech stocks kicked off a few weeks ago by Hillary Clinton’s ill-timed and ignorant criticisms of that sector, the sellers are firmly back in the Wall Street driver’s seat at least for today.
Who knows what tomorrow or Monday may bring. However, as always, this recent orgy of selling will beget an extreme short-term oversold situation which could lead to another fake but intense slingshot rally in the stocks that have been hammered the hardest recently. We’ll just wait and see.