Retail Stocks Drop – Is the Trade War to Blame?
Trump’s trade wars with China and Mexico are proving detrimental to US retailers.
A large number of retail stocks plunged in May as a result of the ongoing trade tensions between the US and two of its key trading partners – China and Mexico. Retailers, aware of their dependency on goods imported from these countries, raised their concerns right away but to little effect.
Effects on the Market
Said tensions resulted in shares of SPDR S&P Retail ETF (NYSEMKT: XRT) dropping by 12.3% in May, as the data from S&P Global Market Intelligence reveals. Many more reputable retailers also saw their stocks decline by double digits, including BJ’s Wholesale (NYSE: BJ), Skechers (NYSE: SKX) and Tapestry (NYSE: TPR) which were down by 12% or Macy’s (NYSE: M) and Stitch Fix (NASDAQ: SFIX) who experienced a 13% decline by the end of May.
However, at the beginning of May there were few indicators that this downfall was coming. With Treasury Secretary’s announcement of the much-anticipated deal with China being on the brink of conclusion, retail stocks were trading at all-time highs.
Events Leading to the Dip in Retail Stocks
Market fluctuations began on May 6 after President Trump tweeted about upping the tariffs on Chinese goods from 10% to 25% by the end of the week if US demands weren’t met. His threats to impose tariffs on other goods worth $300 billion came into force only to be met with the other side’s countermeasures. The Chinese announced they would be taxing $60 billion worth of American goods by June.
As the month progressed, the Trump administration blacklisted the Chinese smartphone company Huawei, restricting its access to hardware, software, and services from American suppliers. The White House mitigated this measure a few days later with a 90-day deferment.
In late May, Skechers, Adidas America, Nike, and Reebok were among the 170 shoe retailers who addressed the President in a letter, pleading him to waive the tariff hike. The shoemakers warned him that average consumers would be the ones most affected by such an increase, as the annual spending on footwear per US family would go up by $131.93.
In reaction to the ongoing trade war, the handbag producer Tapestry moved its production out of China and into Vietnam. However, the strategy had its own set of drawbacks as production in Vietnam hasn’t begun yet.
Macy’s CEO Jeff Gennette commented on the current tariffs situation in an earnings call on May 15. He said the company would adjust its supply chain if the US hikes up tariffs on goods it imports from China.
Where Do We Stand Now?
Forex trading sessions which took place in June brought about an improvement in stock value – retail ETF is up by 4.5% What contributed to the advance? The deal with Mexico and indications that the Central Bank would lower interest rates provided that the trade war simmers down.
Even though it seems the situation is taking a turn for the better, retailers are still apprehensive about the G20 Summit which is scheduled to take place in Japan at the end of June. And for good reason – Trump is threatening to introduce tariffs on another contingent of goods from China worth $300 billion should the Chinese President Xi Jinping fail to meet him.
One thing is for sure – the trade war isn’t over yet.