Retail stocks were once again heading straight for the discount bin on Wednesday.
Struggling department store operator Macy’s was the day’s biggest decliner on the S&P 500, dropping 2 per cent to $30.32 following news that one-time suitor Hudson’s Bay now has its eyes on upmarket retailer Neiman Marcus instead.
Shares in Macy’s, which have been languishing at six-year lows amid falling sales and profits, had rallied to trade as high as $34.37 last month after the retailer received a takeover approach from Hudson’s Bay.
But the prospect of a tie-up dimmed after it emerged on Tuesday that the Canadian owner of Saks Fifth Avenue and Lord & Taylor had held preliminary talks with Neiman about a takeover.
The deal talks underscore the turmoil that has rocked the US retail sector in recent years, particularly the department store business, which is being hit by declining mall traffic, the quickening rise of online shopping and changing consumer shopping habits that value experience — such as dining and travelling — over buying “stuff”.
Investors were given another reminder of these challenges on Wednesday after new data showed that US retail sales grew at its slowest pace in six months in February.
The report, which reinforces the view that retailers are likely to report another quarter of weak sales and earnings following a dismal fourth quarter, weighed on shares in other big retailers.
Kohl’s and JC Penney shed as much as 2 per cent before paring back losses. Target ended 0.3 per cent lower at $54.57 while Walmart lost 0.2 per cent to $70.58.
Elsewhere, spreads on the riskier portion of the US credit market have climbed to the highest level since late January, marking a sign of rising caution among investors.
The risk premium on speculative rated US corporate bonds, a measure of the difference in yield of the assets compared with Treasuries of the same duration, widened to 4.18 percentage points on Tuesday, marking an increase of 40 basis points since March 1, according to Bank of America Merrill Lynch data.
While spreads are dramatically narrower than they were a year ago, the push higher in recent weeks could be a warning of a potential fall in US stocks, according to analysts at Morgan Stanley.
“Lower oil prices driving credit spreads wider and oil sector valuations lower run the risk of introducing a broader equity market correction,” the investment bank said on Wednesday.
Other indicators have also pointed to some jitters among investors. Credit Suisse’s “fear barometer”, which measures how much investors are willing to pay for protection against downside risk to US equities, hit its highest level last Friday since the US election.
The broader US stock market was higher, however, after the Federal Reserve’s monetary policy decision to raise interest rates.
The Dow Jones Industrial Average was up 0.5 per cent at 20,950.10, the S&P 500 tacked on 0.8 per cent to 2,385.26 and the Nasdaq Composite gained 0.7 per cent to 5,900.05.
