Premarket stocks: The Grinch comes for retailers

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Weaker-than-expected retail sales in November pummeled market sentiment on Thursday and raised the odds that the Federal Reserve’s inflation-fighting interest rate hikes would push the economy into recession.

What’s happening: US retail sales, which measure the total amount of money that stores make from selling goods to customers, fell 0.6% in November, the weakest performance in nearly a year. The drop concerned economists who had expected monthly sales to shrink by just 0.1%. It’s also a sharp reversal from October’s sales increase of 1.3%.

That’s a bad sign for the economy. Just last month Bank of America CEO Brian Moynihan told CNN that the continued strength of the US consumer is nearly single-handedly staving off recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to National Retail Federation data.

Market mania: The weak report means that spending faltered just as the holiday season started, a critical time for retailers to ramp up profits and get rid of excess inventory. Investors weren’t too happy about that.

Shares of Costco

(COST) closed Thursday 4.1% lower, Target

(CBDY) fell by 3.2%, Macy’s

(M) dropped 3.5% and Abercrombie & Fitch

(ANF) was down 6.2%.

The entire sector took a blow — the VanEck Retail ETF, with Amazon

(AMZN), Home Depot

(HD) and Walmart

(WMT)as its top three holdings, fell by 2.2%. The SPDR S&P Retail ETF, which follows all S&P retail stocks, was down 2.9%.

Weak sales are likely to continue, say analysts, and if they do, then retailers’ bottom lines and fourth-quarter earnings will suffer.

“The headwinds of the past year are catching up to consumers and forcing them to be more conservative in their holiday shopping this winter,” warned Morgan Stanley economist Ellen Zentner in a note.

The Fed factor: November’s report could indicate that consumers are feeling the double-punch of sky-high inflation and painful interest rate hikes from the central bank. This retail sales data adds to recessionary concerns, as it suggests that consumers may be becoming more cautious with their spending.

“Households are increasingly relying on their savings to sustain their spending, and many families are resorting to credit to offset the burden of high prices. These trends are unsustainable, and the current credit splurge is a true risk, especially for families at the lower end of the income spectrum,” said Gregory Daco and Lydia Boussour, economists at EY Parthenon.

While American bank accounts are still fairly robust, they’re beginning to dwindle. In the third quarter of 2022, credit card balances jumped 15% year over year. That’s the largest annual jump since the New York Fed began keeping track of the data in 2004.

“Against this backdrop, we expect consumers will rein in their spending further in coming months,” said Daco and Boussour. “Real consumer spending should see modest growth in the final quarter of the year, but we expect it will barely grow in 2023.”

Bottom line: If Bank of America’s Moynihan was right, the US economy is in trouble.

US mortgage rates came in lower once again this week, marking the fifth consecutive drop in a row.

The 30-year fixed-rate mortgage averaged 6.31% in the week ending December 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%, reports my colleague Anna Bahney.

That’s a sharp reversal from the upward trend in rates we’ve seen for most of 2022. Those increases were spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates have tumbled in the last several weeks, following data that showed inflation may have finally reached its peak.

The Fed announced on Wednesday that it will continue to raise interest rates — albeit by a smaller amount than it has been.

“Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy,” said Sam Khater, Freddie Mac’s chief economist.

“The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand,” he added. “The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.”

American regulators have been granted unprecedented access to the full audits of Chinese companies like Alibaba

(BABA) and JD.com

(JD) after threatening to kick the tech giants off US stock exchanges if they did not receive the data.

The announcement marks a major breakthrough in a yearslong standoff over how Chinese companies listed on Wall Street should be regulated. It will come as a huge relief for these firms and investors who have invested billions of dollars in them, reports my colleague Laura He.

“For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them,” Erica Williams, chair of the Public Company Accounting Oversight Board, said in a statement Thursday, adding that such access was “historic and unprecedented.”

More than 100 Chinese companies had been identified by the US securities regulator as facing delisting in 2024 if they did not hand over the audits of their financial statements.

On Friday, China’s securities regulator said it’s looking forward to working with US officials to continue promoting future audit supervision of companies listed in the United States.

There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations posted by the US-China Economic and Security Review Commission.