What happened
Shares of several brick-and-mortar retail chains closed lower on Wednesday, amid renewed fears that a surge in coronavirus cases could halt the ongoing reopening of the U.S. economy.
Here's where these three companies' stocks ended the session:
- Bed Bath & Beyond (BBBY) closed at $9.35, down 8.7% on the day.
- Designer Brands (DBI 3.54%), owner of the DSW Designer Shoe Warehouse chain, closed at $6.28, down 9.5%.
- The Gap (GPS 5.59%) closed at $10.42, down 9.3%.
So what
While the rate of new COVID-19 cases has been declining in New York, the outbreak's early U.S. epicenter, they've been rising in other parts of the country -- and the rate of increase is, well, increasing. According to the Wall Street Journal, 33 states, including several large states that reopened in May, had a seven-day average of new cases on Tuesday that was higher than their average during the past two weeks.
Will the retail rebound be halted by a surge in coronavirus cases? That possibility weighed on retailers' stocks on Wednesday. Image source: Bed Bath & Beyond.
Among the states with the highest percentage of positive test results over the last week: Arizona, Florida, Texas, and Georgia -- all states that had moved aggressively to reopen their economies last month.
For struggling consumer discretionary retailers, a category that includes all three of these companies, the concerns should be obvious. A return to stay-at-home orders would drive revenue down sharply again, returning these businesses to the cash-crunched survival mode they weathered in April.
Now what
There's a broader concern: If non-essential businesses in a significant portion of the United States are once again closed down -- either by government orders or by consumers' inclinations -- unemployment will likely increase further, and that in turn would prolong, and likely deepen, the ongoing economic recession.
A deep, protracted recession could put all three of these companies in real danger. That possibility had to be weighing on investors' minds on Wednesday.
