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Premarket Stocks: The Grinch Arrives at Retailers

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A version of this story first appeared in the CNN Business newsletter Before the Bell. Not a subscriber? you can apply right here🇧🇷 You can listen to an audio version of the bulletin by clicking on the same link.

New York

Weaker-than-expected retail sales in November hurt market sentiment on Thursday and increased the chances that the Federal Reserve’s interest rate hikes to fight inflation would tip the economy into recession.

What is happening: US retail sales, which measure the total amount of money stores make from selling merchandise to customers, fell 0.6% in November, the weakest performance in nearly a year. The drop worried economists who had expected monthly sales to shrink just 0.1%. It’s also a sharp reversal from October’s 1.3% sales increase.

This is a bad sign for the economy. Last month, Bank of America CEO Brian Moynihan told CNN that the continued strength of the US consumer is almost single-handedly staving off a recession. Consumer spending is one of the main drivers of the economy, and the last two months of the year can account for around 20% of total retail sales – even more so for some retailers, according to data from the National Retail Federation.

Market craze: The weak report means spending faltered once the holiday season kicked off, a critical time for retailers to boost profits and get rid of excess inventory. Investors weren’t too happy about that.

Shares in Costco (COST) closed Thursday down 4.1%, Target (CBDY) was down 3.2%, Macy’s (M) was down 3.5% and Abercrombie & Fitch (ANF) was down 6.2% .

The entire industry took a hit – the VanEck Retail ETF, with Amazon (AMZN), Home Depot (HD) and Walmart (WMT) as its top three holdings, fell 2.2%. The SPDR S&P Retail ETF, which tracks all of the S&P’s retail stocks, was down 2.9%.

Weak sales are likely to continue, analysts say, and if that happens, retailers’ results and fourth-quarter earnings will suffer.

“Last year’s headwinds are hitting consumers and forcing them to be more conservative in their holiday shopping,” warned Morgan Stanley economist Ellen Zentner in a note.

The Fed Factor: The November report may indicate that consumers are feeling the double whammy of skyrocketing inflation and the painful rises in interest rates from the central bank. This retail sales data adds to recession concerns as it suggests consumers may be becoming more cautious with their spending.

“Families increasingly depend on their savings to support their spending, and many families are turning to credit to offset the burden of high prices. These trends are unsustainable, and the current credit spree is a real risk, especially for households at the lower end of the income spectrum,” said Gregory Daco and Lydia Boussour, economists at EY Parthenon.

While US bank accounts are still quite robust, they are starting to dwindle. In the third quarter of 2022, credit card balances increased 15% year-over-year. That’s the biggest annual jump since the New York Fed started tracking data in 2004.

“Against this scenario, we expect consumers to control their spending even more in the coming months,” said Daco and Boussour. “Real consumer spending should see modest growth in the last quarter of the year, but we expect it to grow little in 2023.”

In short: If Bank of America Moynihan was right, the US economy is in trouble.

US mortgage rates fell once again this week, marking the fifth consecutive drop.

The 30-year fixed-rate mortgage averaged 6.31% for the week ended Dec. 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%, reports my colleague Anna Bahney.

This is a sharp reversal of the upward trend in rates we saw for most of 2022. These increases were spurred by the Federal Reserve’s unprecedented campaign of sharp interest rate hikes to tame rising inflation. But mortgage rates have fallen in recent weeks following data that showed inflation may have finally peaked.

The Fed announced on Wednesday that it will continue to raise interest rates – albeit by a lower amount than it has been doing.

“Mortgage rates continued their downward path this week as softer inflation data and a modest shift in monetary policy from the Federal Reserve reverberated through the economy,” said Sam Khater, chief economist at Freddie Mac.

“The good news for the real estate market is that recent rate declines have led to a stabilization in buying demand,” he added. “The bad news is that demand remains very weak in the face of affordability hurdles which are still quite high.”

US regulators gained unprecedented access to full audits of Chinese companies like Alibaba (BABA) and (JD) after threatening to drive the tech giants off US stock exchanges if they didn’t receive the data.

The announcement marks a major breakthrough in a years-long stalemate over how Chinese companies listed on Wall Street should be regulated. It will be a huge relief for these companies and investors who have invested billions of dollars in them, reports my colleague Laura He.

“For the first time in history, we are able to conduct thorough and thorough inspections and investigations to root out potential issues and hold companies accountable for resolving them,” said Erica Williams, chair of the Public Company Accounting Oversight Board, in a statement Thursday. -market. , adding that such access was “historic and unprecedented”.

More than 100 Chinese companies have been identified by the US securities regulator as threatened with delisting in 2024 if they do not submit audits of their financial statements.

On Friday, China’s securities regulator said it looks forward to working with US authorities to continue promoting future audit oversight of US-listed companies.

There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations published by the US-China Economic and Security Review Commission.