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US stocks tumble on disappointing retail sales

US stocks tumble on disappointing retail sales

A dismal reading on retail sales and worries about the banking industry pounded stocks early Wednesday. Major stock indexes lost more than 2.5 percent, including the Dow Jones industrial average, which fell 235 points.
Although investors already knew that retailers suffered a terrible holiday season, a government report on December sales was a surprise. The Commerce Department said retail sales dropped 2.7 percent, more than double the 1.2 percent decline analysts expected.
The pullback marked a record sixth straight month of declines and was the latest sign of the troubles facing consumers. A steep drop in home prices, rising unemployment and difficulty accessing credit have given many consumers no choice but to pare their spending.
The weakness in consumer spending has been a major factor in the economy's deterioration and analysts say they don't see that improving soon. That's troubling for investors because consumer spending accounts for more than two-thirds of U.S. economic activity. Many predict the recession, already the longest in a quarter-century, will persist at least until late this year.
Investors are also more concerned about the financial industry after Citigroup Inc., as expected, announced Tuesday it would give control of its Smith Barney brokerage business to Morgan Stanley and receive about $2.7 billion in much-needed cash.
The market is worried that Citi is still suffering and will need to further cut costs to boost cash.
Businesses also cut inventories in November by the largest amount in seven years as businesses tried to cope with a record plunge in sales. The Commerce Department said inventories declined by 0.7 percent in November, more than the 0.5 percent drop analysts expected. It was the third straight month that businesses have reduced their stockpiles.
In midmorning trading, the Dow fell 236.87, or 2.80 percent, to 8,211.69.
Broader indexes also declined. The Standard & Poor's 500 index fell 24.84, or 2.85 percent, to 846.95, and the Nasdaq composite index fell 38.59, or 2.50 percent, to 1,507.87.
The Russell 2000 index of smaller companies fell 13.53, or 2.86 percent, to 460.26.
Declining issues outnumbered advancers by about 10 to 1 on the New York Stock Exchange, where volume came to 204.9 million shares.
Bond prices rose as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.18 percent from 2.30 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, fell slightly to 0.11 percent from 0.12 percent late Tuesday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude declined 17 cents to $37.61 a barrel on the New York Mercantile Exchange.
Worries about earnings sent the Dow down 25 points on Tuesday, while broader indexes advanced. The Dow has fallen for five straight sessions as investors have begun to question whether they got ahead of themselves in late December on hopes that the economy could be turning around.
On Wednesday, bank stocks were among the biggest losers. While other financial firms don't appear to be in as dire a situation as Citigroup _ which is expected to post its fifth straight quarterly loss at the end of the week _ the industry's troubles are far from over.
Analysts are fearful that banks' credit problems, which up until now had been largely concentrated in mortgages, are spreading to other portfolios, like credit cards and auto loans, setting up 2009 to be another year of multibillion dollar losses.
Wall Street will get its first taste of how the financial sector is faring Thursday, when JPMorgan Chase & Co. reports earnings nearly a week ahead of schedule.
Analysts expect investors to refrain from buying until they have a better picture of companies' business expectations for 2009.
Investors are also watching closely for any more details on how the remaining $350 billion of the financial bailout package will be spent. President-elect Barack Obama, who has requested the release of the remaining funds, has pledged that billions will go toward helping homeowners facing foreclosure _ meaning the pipeline to banks could be soon shut off.
Federal Reserve Chairman Ben Bernanke said Tuesday that more capital injections may be necessary to stabilize the financial markets and spur more lending. Obama is also pushing for an economic stimulus that includes big tax cuts and has an estimated price tag of about $800 billion.
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Updated : 2021-06-25 21:00 GMT+08:00