Retail news sinks stocks
Stock prices fell sharply Thursday, slicing nearly 150 points off the Dow Jones industrial average, after weak sales at many of the country’s major retailers heightened concerns about consumer spending.
The day’s economic news, which also included a disquieting trade deficit figure, appeared to give investors sufficient reason to cash in some of the market’s recent gains, which had pushed the Dow up more than 1,000 points since the beginning of March.
Companies including Wal-Mart Stores and Federated Department Stores said business fell in April, hurt by rising gasoline prices. Though many retail stocks had respectable gains Thursday, the reports raised worries that retail sales data due today from the Commerce Department would further suggest that the economy was weaker than previously thought.
The downturn in stocks followed a rise Wednesday that pushed the Dow to its 21st record close of the year after the Federal Reserve reiterated that inflation was its main concern despite a slowing of the economy. Thursday’s sluggish retail sales and widening trade gap raised concerns that the central bank could hesitate to make a rate cut that might be necessary to prop up growth. The Fed’s stance on inflation could be reinforced today by a government report on wholesale prices.
“What the Federal Reserve said yesterday is that their principal focus is on inflation, and what retail sales said today is that their focus should be on the economy,” said Hugh Johnson of Johnson Illington Advisors. “Things are not good out there in economy land.”
The Dow fell 147.74 points, or 1.1%, to 13,215.13, giving back five sessions’ worth of gains. It was the biggest point drop in the blue-chip index since a 242-point plunge March 13.
Broader stock indicators also saw their largest one-day point declines since March 13. The Standard & Poor’s 500 index lost 21.11 points, or 1.4%, to 1,491.47, falling back below the 1,500 mark that it surpassed last week for the first time since September 2000.
The Nasdaq composite index dropped 42.60 points, or 1.7%, to 2,533.74. The Russell 2,000 index of smaller-company stocks fell 16.14 points, or 1.9%, to 818.63, retreating from Wednesday’s record close.
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange.
Bond yields fell on the weak economic data, with the yield on the benchmark 10-year Treasury note dropping to 4.64% from 4.67% late Wednesday.
After reporting declines in April sales at stores open more than a year, Federated fell $1.72, or 3.9%, to $42.10; Wal-Mart fell 18 cents to $47.75; and J.C. Penney fell $1.41, or 1.8%, to $76.80. Not all the retail sales news was negative, but overall the industry appeared to be doing worse than anticipated.
An additional disappointment was the U.S. trade deficit, which grew more than 10% to $63.9 billion in March. The gap was its widest in six months and exceeded the $60 billion forecast on average by economists.
Larry Peruzzi, senior trader at Boston Co. Asset Management, said some stock investors might have been itching to take profits because historically the market often has struggled from May to October, giving rise to the line “sell in May and go away.”
Since 1950, stocks on average have been far stronger from Nov. 1 to April 30 than from May 1 to Oct. 31, according to the Stock Trader’s Almanac, a market reference guide.
Crude oil futures rebounded Thursday, rising 26 cents to $61.81 a barrel on the New York Mercantile Exchange.
The dollar rallied against the yen and the euro.
In other market highlights:
* Some weak earnings reports added to the negative mood on Wall Street.
Whole Foods Market dropped $4.65, or 10%, to $41.15. The retailer said slowing sales growth and rising costs hurt its fiscal second-quarter profit.
Interpublic Group posted a bigger loss than analysts had forecast. The advertising and marketing agency slumped 93 cents, or 7.2%, to $12.01.
* Shares of Amgen and Johnson & Johnson slid after a federal advisory panel called for marketing restrictions on popular anemia drugs sold by the companies. Amgen tumbled $5.77, or 9.1%, to $57.33, becoming the biggest drag on the Nasdaq, while Johnson & Johnson fell $1.61, or 2.5%, to $62.50.
* Among other retailers, RadioShack slid $1.50, or 4.6%, to $31.13 after Credit Suisse cut its rating on the retailer to “neutral” from “outperform” and downplayed the possibility it would be acquired. Children’s Place cut its earnings forecasts after reporting April sales. Its shares fell $1.37, or 2.7%, to $52.09.
* JetBlue Airways rose 49 cents, or 4.7%, to $10.89 after the carrier replaced founder David Neeleman as chief executive.
* Advanced Micro Devices rose 48 cents, or 3.5%, to $14.05 for the top gain in the S&P; 500. The chip maker fired 430 workers to reduce costs after reporting a first-quarter loss last month.
* Overseas, key stock indexes fell 0.1% in Japan, 0.4% in Britain, 0.8% in Germany and 0.6% in France.
