Consequences of the Fed’s Decision to Not Raise Interest Rates
U.S. stocks are in the red Tuesday as market watchers continue to indicate anxiety over the Fed’s decision last week to not raise the benchmark interest rate.
In addition to the weight of slumping global growth — intensified by China’s increasingly volatile economy as well as unevenness in European markets — experts say the Fed’s decision has sent a signal to the U.S. market that the American economy is not as solid as they had hoped.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the Fed said in its post-Federal Open Market Committee (FOMC) statement on Sept. 17.
At 11:18 a.m. EST, the S&P 500 slumped 30.47 points, or 1.55 percent, to 1,936.50; the Dow Jones shed 259.63 points, or 1.57 percent, to 16,250.56; and the Nasdaq was down 88.89 points, or 1.84 percent to 4,740.07.
As has been the trend, footwear’s major stocks tracked the market. Nike Inc.’s share price dropped 1.62 percent, Under Armour Inc. dipped 1.87 percent, Skechers USA Inc. lost 1.03 percent, Caleres decreased 0.49 percent and Foot Locker Inc. declined 1.07 percent.
Decreases in the costs of footwear inputs are expected to be a potentially significant tailwind for shoe companies in the next few months, experts say.
Since oil prices are down 60 percent year-over-year (in August), athletic vendors, in particular, are expected to benefit from lower oil-based synthetic apparel and footwear. Meanwhile, leather represents 30 percent of the cost of goods sold for the footwear industry, notes Macquarie Securities analyst Laurent Vasilescu, indicating it’s declining price is another source of savings for shoe companies.
In a Sept. 21 note, Citi Research analyst Kate McShane also pointed out the continual slides in synthetic-fiber prices, down nearly 21 percent year-over-year in August.
“The monthly price decline represents the largest seen since September 2011 and has been driven by falling oil prices, currency devaluation and slowing demand growth,” McShane wrote.
Citi’s Commodities Team, the report added, expects oil prices to continue falling through Q4 before increasing moderately in 2016.
So far, VF Corp., Wolverine World Wide Inc., Deckers Brands, Caleres, Foot Locker, Columbia Sportswear, Nike and Genesco Inc. have all been named as potential beneficiaries of the declining cost of footwear inputs.
State of Outdoor
Quiksilver’s bankruptcy filing, on Sept. 9, has left some questioning the state of outdoor and action sports as the company’s downward spiral seems to mirror the struggles of surf-themed darlings such as Tilly’s and Zumiez.
“Everyone attempting to cater to action sports has had struggles recently. I think there’s a lot of hurting in this industry,” said Matt Powell, a sports-industry analyst at The NPD Group. “Zumiez put up some weak numbers [recently], and I don’t see any catalyst that’s going to turn that around anytime soon.”
Quiksilver’s filing may not be a surprise. Its challenges have been buzzed about in recent months, with analysts indicating that VF Corp. may be eyeing an acquisition of the brand.
There are lessons that can be gleaned from Quiksilver’s woes, insiders say.
“The lifestyle of an action-sports participant is pretty out there, with the tattoos and piercings, but when it comes to their apparel and footwear, they’re pretty conservative,” Powell said. “And the fashion hasn’t changed much, so it’s difficult for brands to stand out in that space and create a niche that is distinctive.”