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Eduardo Munoz/Reuters A man walks past a shop while carrying a shopping bag in New York, December 26, 2012. The 2012 holiday season may have been the worst for U.S. retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.
U.S. stocks fell Wednesday for the third trading day in a row. Disappointing holiday sales weighed heavy on retail companies, and the unwelcome “fiscal cliff” package of higher taxes and lower government spending loomed nearer.
The Dow Jones industrial average slipped 24.49 points to 13,114.59. The Standard & Poor’s 500 index fell 6.83 to 1,419.83 and the NASDAQ composite lost 22.44 to 2,990.16. Markets in Canada were closed for Boxing Day.
Blackberry maker Research in Motion, meanwhile, saw its shares rise more than 11 per cent in trading on the NASDAQ exchange, rebounding from a post-earnings crash that erased a quarter of the company’s market value. RIM shares jumped $ 1.21 to close at $ 11.82 (all figures U.S.)
The MasterCard Advisors SpendingPulse report found that sales of electronics, clothing, jewelry and home goods increased just 0.7 per cent in the two months before Christmas compared with the same period last year.
Major U.S. retailers including Abercrombie & Fitch, Sears Holdings, Urban Outfitters, Limited Brands, Nike and Gap were all down. Handbag maker Coach, a bellwether of the luxury market, plummeted $ 3.39 to $ 54.13 (all figures U.S. It lost nearly 6 per cent of its value, more than any other company in the S&P 500.
Plodding retail sales are a concern because consumer spending accounts for roughly 70 percent of the U.S. economy. When shoppers pull back on spending, that can take a chunk out of company earnings, which in turn pushes down the stock market.
“Consumers just aren’t confident,” said Jeff Sica, president and chief investment officer of SICA Wealth Management in Morristown, N.J. “They don’t feel a sense of security that they’re going to be able to maintain their job or their income or their savings.”
Sica pointed out that normally the market rises at this time of year — the so-called Santa Claus rally. Since 1969, stocks have risen an average of 1.6 per cent over the last five days of December and the first two of January, according to The Stock Trader’s Almanac.
The Senate is due in session Thursday, and President Barack Obama is expected to return early from his Christmas vacation in Hawaii, arriving back in Washington early Thursday. Still, congressional officials said Wednesday they knew of no significant strides toward a compromise over the long Christmas weekend, and no negotiations have been set.
It’s not clear that the market would automatically rise if there is a deal, or automatically fall if there isn’t. Except for the past three days, the market has risen more or less steadily since mid-November despite the lack of a “fiscal cliff” deal. That means many traders have been assuming that lawmakers would work out something before the deadline, so any positive effect from a compromise is already baked into stock prices.
While a compromise is still possible, some analysts said that what the market feared most wasn’t the cliff, but the possibility that lawmakers would come up with only a stop-gap solution. That would probably mean they’d have to meet again in the new year to hammer out a permanent deal, dragging out the uncertainty.
“It’s like ripping the Band-Aid off now versus later,” Cavanaugh said. “The Band-Aid’s got to come off. We’ve got to cut spending, we’ve got to pay down the debt.”