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Why American Eagle Outfitters, Fossil, and Children's Place Stocks Are Soaring Wednesday

By Rich Smith – Sep 16, 2020 at 5:30PM

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Near-0% interest rates could be a boon to retailers.

What happened

It's Wednesday, and stock markets are acting weird again. Today, for no apparent reason, the stock market is only vacillating (the Dow is up only a fraction of a percent, while the S&P 500 is actually down for the day) -- but a whole bunch of retailers went off to the races.

At 3:45 p.m. EDT, in the final 15 minutes of trading, we're watching retail clothier American Eagle Outfitters (AEO -1.26%) fly 6% higher, watchmaker Fossil Group (FOSL -1.79%) rise 12.3%, and Children's Place (PLCE 7.18%) romp to a 13.5% gain -- all on no obvious news.

Three colorful arrows racing straight up on a black background

Image source: Getty Images.

So what

Eliminating the "usual suspects," I can assure you there have been no analysts upgrading any of these stocks today, nor even tweaking their price targets higher. None of the retailers named has released new optimistic guidance, nor pre-announced earnings that would have investors feeling optimistic, either.

Rather, it appears the only "good news" at all today is that the Federal Reserve just signaled its intention to leave interest rates unchanged and near zero from now through 2023, and says it is "not even thinking about thinking about raising rates," according to Marketwatch.  

Now what

Why is this good news for retailers, and what does it imply will happen next?

Well consider: Currently, tiny Fossil boasts a market capitalization of only $433 million -- but carries a debt load of more than $600 million. Children's Place's situation is similar -- $465 million market cap, $666 million debt. And American Eagle, the biggest of the bunch at $2.56 billion in market value, also has a sizable debt burden of $2.1 billion.

If the Fed keeps interest rates near zero for the next three-plus years, though, each of these debt burdens will become correspondingly easier to manage, and retailers should have little difficulty refinancing their debts at attractive rates for the foreseeable future. At the same time, low interest rates should result in low interest rates on credit cards, helping to overcome consumers' reluctance to spend, and boosting sales at retailers to help get them over the hump and through the recession.

Viewed from this perspective, investors' decision to suddenly rush out and buy retail stocks today, even in the absence of obvious "news," and even on a "down day" for the stock market, actually kind of makes sense.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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