What Happened?

A number of stocks fell in the afternoon session after a confluence of negative economic data pointed to a weak economy. The latest Survey of Consumer Expectations from the New York Fed revealed that households' short-term inflation expectations are rising, while their outlook on the labor market is deteriorating. Consumers expressed greater concern about potential job losses and expect lower earnings growth, factors that directly impact discretionary spending. 

Adding to the unease, Chief Economist at Moody's Analytics, Mark Zandi, warned that 22 states are already showing clear signs of a recession, placing the broader U.S. economy in a precarious position. The ongoing U.S. government shutdown further dampens sentiment, threatening to weigh on incomes and purchasing power.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Home Furniture Retailer company Williams-Sonoma (NYSE: WSM) fell 3.2%. Is now the time to buy Williams-Sonoma? Access our full analysis report here, it’s free for active Edge members.
• Footwear Retailer company Designer Brands (NYSE: DBI) fell 3.9%. Is now the time to buy Designer Brands? Access our full analysis report here, it’s free for active Edge members.
• Footwear Retailer company Shoe Carnival (NASDAQ: SCVL) fell 3.9%. Is now the time to buy Shoe Carnival? Access our full analysis report here, it’s free for active Edge members.
• Beauty and Cosmetics Retailer company Sally Beauty (NYSE: SBH) fell 4%. Is now the time to buy Sally Beauty? Access our full analysis report here, it’s free for active Edge members.
• Apparel Retailer company Tilly's (NYSE: TLYS) fell 4.6%. Is now the time to buy Tilly's? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Tilly's (TLYS)

Tilly’s shares are extremely volatile and have had 78 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was about 2 months ago when the stock gained 18% as markets continued to rally amid growing investor optimism for a Federal Reserve interest rate cut in September. 

This optimism was spurred by a recent Consumer Price Index (CPI) report that did not show runaway inflation, increasing the perceived probability of a rate cut to over 90%. Lower interest rates are generally seen as a positive for the economy as they reduce borrowing costs for consumers, which can stimulate spending on non-essential goods. Consequently, investors bid up shares in the apparel, home furnishings, and automotive retail industries in anticipation of stronger consumer demand.

Tilly's is down 59.2% since the beginning of the year, and at $1.86 per share, it is trading 60.3% below its 52-week high of $4.68 from December 2024. Investors who bought $1,000 worth of Tilly’s shares 5 years ago would now be looking at an investment worth $291.99.

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