Recession Chatter: What’s Really Going On With The Economy

New York Stock Exchange
Traders on the floor of the New York Stock Exchange.
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When it comes to the U.S. economy, there is a lot to digest lately.

After getting off to a tough start in 2016, the U.S. Stock Market took another turn for the worse Monday, with all major indexes seeing red yet again. The Dow Jones shed more than 400 points at one point Monday while the Nasdaq sunk closer toward becoming a bear market.

The latest sell-offs, buoyed by record-low oil prices, an emerging fear of a combustible tech bubble and, among other things, concerns regarding an interest rate hike, have led to Recession chatter.

In a Feb. 9 note titled “Are We Going Into A Recession? If So, Consider These Retail Stocks,” Cowen and Co. analyst Oliver Chen said he “hopes” the economy isn’t heading into a recession but doesn’t deny the possibility altogether.

As investors eye struggling European and China markets, footwear-and-apparel companies are grappling with elevated inventories while uncontrollable variables — such as weather — add even more fuel to the fire. There’s no wonder the dreaded word, recession, has resurfaced.

Since low gas prices — although they signal weaknesses in other parts of the economy — tend to benefit the mid-to-low income consumer most, Chen suggests that retailers who cater to this consumer, such as Ross Stores Inc. and Wal-Mart Stores Inc., could see gains in an otherwise tough market.

Still, overall retail traffic continues to slow with February’s week one sales declining 1.67 percent year-over-year, slightly worse than the prior week’s decline of 1.25 percent, according to Chen and Citi Research analyst Kate McShane.

A slowdown in the luxury market is also on the radar as wealthy consumers weigh global economic volatility.

“Economic conditions still support a wealthy high-end consumer but the lackluster investor sentiment to start the year and general market uncertainty on the impact of falling commodity prices, China’s slowdown, and the impact of Fed rate increases on global GDP could reduce the high-end consumer’s propensity to spend in 2016,” Chen wrote on Feb. 1. “Nordstrom was one of the first retailers to highlight weakness among their customer base by stating on its 3Q15 call that traffic across all regions slowed beginning in August, which is when the S&P 500’s volatility started.”

Meanwhile, the athletic footwear business remains strong, Sterne Agee CRT analyst Sam Poser pointed out Tuesday. Total sales increased 6.4 percent in January and 8.8 percent in Q4, the analyst said.

“The casual athletic business is robust. Adidas classic footwear is beginning to make a comeback. Under Armour’s footwear business is making headway, although off of a small base. Our proprietary checks indicate Skechers continues to outperform,” Poser noted.