What happened
Shares of Macy's (M +0.63%) were gaining today -- the department-store chain was a winner on President Trump's announcement that he would not be imposing tariffs on Mexico as he had threatened to do last week. The news sent shares of Macy's up 5.4% as of 11:19 a.m. EDT and pushed the market up broadly, with the S&P 500 increasing 0.9%. The SPDR S&P Retail ETF was also up 1.4%, showing that retail stocks in general were big beneficiaries.
So what
Though there was no company-specific news out on Macy's today, the stock rebounded, since investors see it as being sensitive to trade tensions. Macy's stock fell 13% last month, largely because of the escalating trade war with China, and CEO Jeff Gennette warned on the recent earnings call that tariffs would impact the company, which sells everything from apparel to home goods to cosmetics and jewelry.
Image source: Macy's.
Gennette noted that the increase in tariffs from 10% to 25% on a certain set of goods imported from China would affect the company's furniture business. He also said that if tariffs are imposed on China-sourced goods like clothes, as Trump has threatened, that would have an impact on Macy's private and international brands, and the company would work with suppliers to mitigate the effects.
Now what
Tariffs on imports from Mexico would have only given Macy's more trade-related challenges; for a company struggling to deliver even modest growth, marginal costs can have a significant impact on its performance. The stock was trading at a 52-week low just last week, so investors may have seen a buying opportunity following news of the Mexico resolution.
At a P/E ratio of just around 6 and a dividend yield above 7%, the stock still looks cheap according to conventional metrics.
