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Stocks tumble on disappointing retail sales

January 15, 2009|Martin Zimmerman and Andrea Chang

A dismal report on holiday retail sales and renewed worries about the nation's banking system led to another bout of selling on Wall Street on Wednesday, deepening the stock market's 2009 losses.

The Dow Jones industrial average slid 248.42 points, or 2.9%, to 8,200.14 after the Commerce Department said December sales fell 2.7% from November. That was twice as much as analysts had predicted and provided little hope that consumer spending, which accounts for about two-thirds of U.S. economic activity, was poised for a rebound.

"Consumers are in deep hibernation, and there is no sign that they will wake up this spring or that the retail outlook will pick up any time soon," said Britt Beemer, chairman of America's Research Group, which tracks consumer behavior.

Anxiety about job security and the housing meltdown has been a self-fulfilling prophecy, hurting the labor and real estate markets while driving down consumer confidence, said Brent Schoenbaum, a retail partner at accounting firm Deloitte & Touche in Los Angeles. The Labor Department said Friday that the U.S. unemployment rate jumped to 7.2%.

"It's just bad news after bad news," Schoenbaum said. "Something significant needs to trigger a turn to more optimistic views before consumers will begin to spend more freely."

An index of 35 retail stocks slid 4.2%, with every member finishing in the red. Among the losers were J.C. Penney, whose shares fell 7%; Wal-Mart Stores, off 1.1%; and Abercrombie & Fitch, down 6.1%.

Adding to the gloom was news Wednesday that Fresno-based retailer Gottschalks was filing for Chapter 11 bankruptcy protection. The company's stock plunged 30 cents a share to 15 cents. The shares were trading above $3 a share in late 2007.

Meanwhile, fresh worries about the banking system battered financial stocks. A key index of 24 bank stocks was down more than 6%, falling below its Nov. 20 low.

The banks were led lower by Citigroup, which could shrink dramatically under its reported plans to cede control of its Smith Barney retail brokerage unit and possibly shed its consumer finance units. Citigroup's stock plummeted 22%.

Predictions by analysts that San Francisco-based Wells Fargo and HSBC, Britain's largest bank, may have to raise capital and cut their dividends added to the downbeat mood. Wells Fargo stock slid 5.2%.

Investors are concerned that more government help may be needed to prop up the banks, which have been battered by the recession, falling home prices and tight credit markets. Federal Reserve Chairman Ben S. Bernanke said Tuesday that more capital injections might be necessary to stabilize the financial markets and spur more lending.

After the market closed Wednesday, the Wall Street Journal reported that Bank of America might need billions more in federal aid to complete its purchase of brokerage firm Merrill Lynch -- a deal that was a key component of the government's bailout of the financial industry last fall.

The fact that the incoming Obama administration is running into congressional opposition to its economic stimulus package isn't helping to calm Wall Street's nerves. Nor are the potential troubles surrounding the confirmation of Timothy F. Geithner as Obama's Treasury secretary, which could force the new president to assume office with that crucial post vacant, according to a report by Donald Luskin, chief investment officer of Trend Macrolytics in Menlo Park, Calif.

Wall Street will get its first look at the financial sector's fourth-quarter performance today when JPMorgan Chase reports earnings nearly a week ahead of schedule. Worries about other fourth-quarter earnings reports, which will deluge investors over the next few weeks, are also weighing on stocks.

In other news after the closing bell Wednesday, Apple Chief Executive Steve Jobs said he would take a medical leave from the company after learning that his "health-related issues are more complex" than first believed. Apple shares fell 8% in after-hours trading.

At one point Wednesday, the Dow was down more than 300 points, which would have been its biggest one-day drop since Dec. 1. Other major stock gauges also finished the day down sharply, with the Standard & Poor's 500 index losing 3.4% to 842.62 and the tech-heavy Nasdaq composite down 3.7% to 1,489.64.

Although trading volume was moderate, losers swamped winners by more than 8 to 1 on the New York Stock Exchange.

All 30 Dow stocks were down for the day, and 480 members of the S&P 500 lost ground.

In part, Wednesday's slide, which pushed the Dow to a 6.6% loss for the new year, was a reaction to a rally of about 20% since late November, which itself followed the market's blistering fall sell-off, said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati.

"After the November lows, we went up too far, too fast, and we were ripe for a pullback," Sargen said.


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