Shares of Express, Inc. (EXPR -6.12%), a fashion apparel retailer, dropped nearly 11% Tuesday after the markets had another down day even though the Federal Reserve took an emergency step of cutting the benchmark U.S. interest rate by half a percentage point.
It's always difficult to predict how stocks will react. On one hand, when the Fed cuts rates, it generally sparks some optimism that it will fuel the economy, and thus boost stocks. On the other hand, it also generally means that the economy is shaky.
Our economy is far away from the perilous conditions we saw in 2008, but uncertainty and fear are accelerating as the number of COVID-19 cases increases. Express already had plenty of challenges, including the disruption of e-commerce and weaker mall and store traffic, as it heads into its March 11 fourth-quarter earnings call. And while the rate cut is viewed as positive for the economy, there's still much uncertainty about effects of the COVID-19 coronavirus.
Today's decline merely added to the rough week for many consumer goods stocks, and Express has shed roughly 21% of its value over the past five trading days. But investors who are hovering over the panic button should take a deep breath and realize that the long-term horizon of stocks hasn't changed. Corrections happen, and concerns like COVID-19 happen, and over the long haul these things balance out, provided investors don't panic each time.
To get a better idea of the company's future, investors should spend some time understanding Express' new strategy to identify $80 million in annualized cost savings over the next three years, and to close roughly 100 underperforming stores by 2022. COVID-19 is a negative near-term development, but savvy investors should be more worried about the long-term challenges facing the company.