Food retailers collapse as Amazon makes play for Whole Foods Market
Dow Jones closes at new high as oil giants advance
Consumer sentiment and housing data further dampen sentiment
Leading stocks, with the exception of food retailers, finished the week mixed.
The Dow Jones 30-share index closed 24 points higher at a record closing level of 21,384 but the Nasdaq Composite gave up 14 points at 6,152; the benchmark S&P 500 added just over half a point at 2,433.
The Nasdaq’s slide was sparked by technology stocks, which remain under a cloud after Goldman Sachs recently suggested many of the big names of the sector are overbought.
Lunchtime: Supermarket sweep - prices slashed across the board
While the Dow Jones Average had battled into positive territory in lunchtime trading, the S&P 500 remained in the red.
The Dow was 13 points better at 21,373 while the S&P 500 was a little more than two points lower at 2,430.
The consumer staples sector, dominated as it is by food retailers, was getting a right shellacking after Amazon.com Inc (NASDAQ:AMZN) surprised the world by launching a US$13.7bn takeover of Whole Foods Market Inc (NASDAQ:WFM).
Investors rushed for the exits, selling off the likes of United Natural Foods (NASDAQ:UNFI), Supervalu Inc (NYSE:SVU), Kroger Co (NYSE:KR) and Smart & Final Stores (NYSE:SFS), all of which suffered double-digit percentage losses.
Retail focused real estate investment trusts such as Kimco Realty (NYSE:KIM) - down 5.1% - also got it in the neck, as investors fretted that Amazon’s entry into bricks & mortar retailing in a big way could shake up a cosy little niche.
Open: Retail stocks plunge and macro-economic numbers disappoint
Retail stocks were thrown into disarray this morning as online giant Amazon.com made its biggest move yet into the bricks & mortar arena.
Amazon.com Inc (NASDAQ:AMZN) is splashing out US$13.7bn for Whole Foods Market Inc (NASDAQ:WFM), making this Amazon’s biggest ever transaction, dwarfing the US$970mln it paid in 2014 for games developer Twitch Interactive.
READ Amazon Inc poised to clinch its biggest ever deal by splashing US$13.7bn on Whole Foods Market Inc
Shares in Whole Foods shot up 27% to US$41.96 but, to say the least, the reaction to the news by investors in other bricks & mortar retailers has been less joyous.
Newswire Marketwatch estimated that close to US$29bn was wiped off the market value of grocery stocks.
The move hit players great and small. Shares taking a hit included Supervalu Inc (NYSE:SVU), down 19.4%; Smart & Final Stores Inc (NYSE:SFS), down 15.4%; Kroger Co (NYSE:KR), down 14.5%; Target Corporation (NYSE:TGT), down 11.1%; Natural Grocers by Vitamin Cottage Inc (NYSE:HGVC), down 8.8%; Dollar General Corp (NYSE:FG), down 6.5%; and the mighty Wal-Mart Stores Inc (NYSE:WMT), down 5.1%.
Shares in Amazon rose 3.2% to US$995.50.
On what was expected to be a quiet end to the week, the major benchmarks have turned south, with the Dow Jones Average down 35 at 21,325 and the S&P 500 off just under 7 points at 2,426.
Earlier, there were some underwhelming economic data releases that also soured sentiment.
US consumer confidence levels have slipped back to levels last seen before President Trump’s election.
“A lack of action of fiscal and tax policy and a sense of disappointment on the economy seems to be prompting weaker sentiment readings,” suggested James Knightley, a senior economist at Dutch finance house ING, after the preliminary June reading of the University of Michigan consumer confidence index came in at 94.5 versus 97.1 in May.
“It was also weaker than the 97.0 consensus and is the softest reading since last October. The details show the weakness was spread fairly evenly between the current conditions index and the future expectations series,” Knightley said.
Building permits and housing starts numbers also came in below economists’ forecasts.
Construction of new houses fell in May for the third month in a row. Economists had forecast housing starts in May would run at an annualized rate of 1.23mln, but the actual number was 1.09mln.
The number of building permits fell 4.9% in May to an annual rate of 1.17mln, which was the lowest level in 13 months.
Market preview: Quiet start expected (until Amazon made its move!)
Blue-chips were set to claw back most of yesterday’s losses - subject to the impact of a slew of economic data.
“We do have more data to come from the US around the open on Wall Street, with building permits, housing starts, UoM consumer sentiment and inflation expectations figures all being released,” noted Craig Erlam, at forex trading platform operator Oanda.
“The Fed raised interest rates earlier this week and signalled one more this year but traders still appear unconvinced, with another hike by December only around 45% priced in. How the data performs between now and the end of the year should see the gap between the two close in the months ahead and today’s figures could offer some interesting insight, particularly the consumer and inflation numbers,” he added.
Spread betting quotes indicated the Dow Jones average, which shed 14 points yesterday to close at 21,539, would open at around 21,376.
The S&P 500, which was five-and-a-half points lower at 2,432 yesterday, was set to open its account some four points firmer at around 2,436.
Across the pond, Britain took a rest from being the center of attention and let Greece back into the spotlight.
European finance ministers made another loan deal with the troubled southern European company ahead of a parcel of debt repayments due next month.
“Investors have reacted positively to eurozone leaders reaching a fresh deal with Greece and averting another debt crisis – at least for the time being,” observed Dennis de Jong, managing director of UFX.com.
““Greece continues to pose some difficult questions across the continent, particularly in Germany, where offering a too favourable bailout agreement could spell electoral suicide ahead of September’s federal vote,” he added.
Meanwhile, controversial Swiss foods group Nestle is mulling a sale of its US confectionery business, which could see ownership of famous brands such as Butterfinger and BabyRuth change hands.
As for home-grown US corporate news, there has not been a lot of it yet today and that was not expected to change much.
The shares shot up 84% to US$3.77 on the news.
Another biotech going well, albeit less spectacularly, was Adamis Pharmaceuticals Corp (NASDAQ:ADMP), which was up 5% at US$6.04.
This morning’s pre-market gain added to yesterday’s two dollar surge to US$5.75 after the company’s allergic reaction treatment got approved by the Food and Drug Administration.