Stocks Take a Beating

Nor do Americans have as much flexibility to borrow as they did in recent years. Stung by losses on loans made in the boom years, banks and other lenders have become more cautious. For example, 80 percent of senior bank loan officers surveyed in July by the Federal Reserve said they had tightened lending standards for home equity lines of credit, a form of borrowing that helped boost sales in recent years. And the average interest rate on a 30-year, fixed-rate mortgage, which was under 6 percent in May, was 6.35 percent last week, according to Freddie Mac.

Concerns about the ongoing credit crunch have pummeled financial stocks this year. Banks and brokerages, hurt by mortgage defaults and their impact on the value of securities tied to mortgage loans, were among the biggest decliners Thursday. Citigroup fell $1.31 to $18.30, Bank of America dropped $2.36 to $30.60, and Lehman Brothers declined $1.66 to $15.28.

"If you look at what's going on in the credit markets, there's really not much improvement there, just more of the same. Maybe things get worse this quarter," Hensen of MFC said. "I would be sort of shy on them going into earnings season. I think it's going to be pretty tough on them."

Baltimore-based money manager Legg Mason tumbled $4.76 to $42.61 after Credit Suisse downgraded the stock on concerns about the possibility of additional write-downs and withdrawals. American Express fell $2.16 to $38.75 after a Lehman Brothers analyst cut his 2009 profit forecast for the credit card company.

Industrial issues including Caterpillar and General Motors also declined. Boeing, working to avert a strike by its machinists, fell $3.04 to $63.03. AK Steel fell $5.05 to $40.48 after Goldman Sachs downgraded its outlook on the steel industry.

Data released by nearly 40 retailers yesterday showed that shoppers flocked to discount stores and warehouse clubs in August, a sign that consumers' budgets remain constrained.

Sales at Wal-Mart's U.S. stores open at least a year were up 3 percent excluding fuel, once again besting rival Target, where sales fell 2.1 percent. Wal-Mart's discount division Sam's Club rose 4.2 percent, while Costco grew a strong 6 percent and BJ's Wholesale Club jumped 7.7 percent, all excluding fuel.

Specialty retailers and department stores posted dismal results, with some sacrificing sales in favor of leaner inventories and others promoting aggressively to drive up traffic. Even luxury retailers, whose customers were thought to be immune to the downturn, experienced declines, including a 0.5 percent dip at Neiman Marcus Group and a 6 percent drop at Saks.

The back-to-school season is often viewed as a bellwether for the holidays, a make-or-break time for retailers. If August is any indication, consumers are not likely to feel very festive.

"From a 30,000-foot level," Todd Slater, an analyst with Lazard Capital Markets, wrote in a research note, "the best that can be said was that the month came in less bad than had been feared."

Staff writer Neil Irwin contributed to this report.