U.S. equities were hit hard on Wednesday as concerns over the health of the retail sector — ahead of a strong of earnings reports from the group — cast doubt over the American consumer and the vitality of economic growth.
In the end, the Dow Jones Industrial Average lost 1.2%, the S&P 500 lost 1%, the Nasdaq Composite lost 1% and the Russell 2000 lost 1.3%. Treasury bonds were stronger, the dollar was weaker, the gold posted a gain of 0.9%, and oil rallied in response to an unexpected inventory draw gaining 3.2% to close at $46.07 as well as supply disruptions out of Canada, Libya, and Nigeria (although all are expected to be short-term hiccups).
On the earnings front, Walt Disney Co (NYSE:DIS) and Macy’s, Inc. (NYSE:M) lost 4% and 15.2%, respectively, after reporting disappointing results.
DIS posted only its fourth quarterly miss in the past 10 years, shocking the buy-and-hold types as a 13% ad decline revenue at ESPN weighed on the bottom line and fueled concerns about cord cutting and a future of traditional media.
M was hit with a 7%-plus drop in sales in what was its fifth consecutive quarterly sales decline. Forward guidance was cut as well. Earnings came in at 40 cents (vs. 36 cents expected) while sales totaled $5.77 billion (vs. $5.95 billion expected). Same-store sales dropped 5.6%.
Management highlighted weakness in consumer spending worsened in the middle of March — which was about a month into the epic 50% rebound in wholesale gasoline prices.
Macy’s wasn’t alone in its suffering.
- Gap Inc (NYSE:GPS) lost 3.7% on weaker comp-store sales.
- Office Depot Inc (ODP) cratered 40.4% while Staples, Inc. (NASDAQ:SPLS) lost 18.3% after the government torpedoed their merger plans on antitrust concerns.
- Fossil Group Inc (NASDAQ:FOSL) lost 29.1% on weaker-than-expected Q1 earnings and a 20% cut to 2016 guidance on slower spending from tourists and slower watch sales.
- And Ross Stores, Inc. (NASDAQ:ROST) lost 5.4% after being downgraded by analysts at Piper on valuation and a weakening consumer spending environment as interest in off-price stores wanes.
Overall, defensive utility stocks led the way with a 0.2% gain while consumer discretionary stocks were the laggards down 2%. Newmont Mining Corp (NYSE:NEM) gained 2.6% after getting an upgrade from analysts at Goldman on a more constructive outlook on gold prices.
Looking ahead, focus will remain on the retail sector with results from Nordstrom, Inc. (NYSE:JWN), Ralph Lauren Corp (NYSE:RL) and Kohl’s Corporation (NYSE:KSS) on Thursday.
For now, I continue to recommend defensive positions such as the ProShares Ultra 20+ Year Treasury (NYSEARCA:UBT) which gained 1.4% for Edge subscribers today to bring its total gain for the month to 3.4%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
