What Happened?

A number of stocks jumped in the afternoon session after markets rebounded following a sharp sell-off in the previous trading session as a weaker-than-expected July jobs report fueled investor hopes for a potential interest rate cut. The U.S. economy added only 73,000 jobs in July, falling well short of the 110,000 expected by economists. This disappointing data has led to a dramatic shift in market sentiment regarding the Federal Reserve's next move. According to the CME FedWatch Tool, the probability of a September interest rate cut has surged from around 40% to over 80%. Lower interest rates generally stimulate the economy by making borrowing cheaper for consumers. This can lead to increased spending on discretionary items, such as apparel and home goods, which directly benefits consumer retail companies. The prospect of more accommodative monetary policy is therefore boosting investor confidence in the sector's outlook.

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:

• Apparel Retailer company Tilly's (NYSE: TLYS) jumped 3%. Is now the time to buy Tilly's? Access our full analysis report here, it’s free.
• Apparel Retailer company American Eagle (NYSE: AEO) jumped 21%. Is now the time to buy American Eagle? Access our full analysis report here, it’s free.
• Footwear Retailer company Designer Brands (NYSE: DBI) jumped 12.7%. Is now the time to buy Designer Brands? Access our full analysis report here, it’s free.
• Home Furniture Retailer company RH (NYSE: RH) jumped 9.5%. Is now the time to buy RH? Access our full analysis report here, it’s free.
• Apparel Retailer company Victoria's Secret (NYSE: VSCO) jumped 8.1%. Is now the time to buy Victoria's Secret? Access our full analysis report here, it’s free.

Zooming In On American Eagle (AEO)

American Eagle’s shares are very volatile and have had 21 moves greater than 5% over the last year. But moves this big are rare even for American Eagle and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 3 days ago when the stock dropped 3.2% on the news that the broader market tumbled in the morning session after a surprisingly weak U.S. jobs report and the announcement of new, widespread tariffs on imported goods. The U.S. economy added only 73,000 jobs in July, falling far short of the 109,000 forecast. 

Compounding the issue, job gains for May and June were revised down by a combined 258,000, signaling what some see as “increasing signs of fragility” in the labor market. Simultaneously, the White House announced new tariffs, ranging from 10% to 41%, on goods from 92 countries. This “double whammy” of negative news has intensified fears that ongoing trade wars are damaging the U.S. economy. The combination of a weaker labor market and new trade barriers has rattled investor confidence, fueling expectations that the Federal Reserve may be forced to cut interest rates to support the economy.

American Eagle is down 23.2% since the beginning of the year, and at $13.15 per share, it is trading 42.1% below its 52-week high of $22.70 from August 2024. Investors who bought $1,000 worth of American Eagle’s shares 5 years ago would now be looking at an investment worth $1,203.

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