Dismal Retail Report Helps Send Stocks To Another Sell-Off

Wall Street ended another volatile week of trading in the red, staging a steep sell-off yesterday amid mounting evidence that the financial crisis has drained consumers' desire to shop.

Stocks traded at a loss most of the day but regained some ground late in the afternoon, even briefly pushing into positive territory. But in what has become a common occurrence, the rebound was more than wiped away during the last hour of trading.

The Dow Jones industrial average fell 3.82 percent, or 337.94, to 8497.31, while the Standard & Poor's 500-stock index tumbled 4.17 percent, or 38 points, to 873.29. They fell 5 percent and 7 percent, respectively, for the week.

The tech-heavy Nasdaq composite index took the biggest hit yesterday after Nokia lowered its fourth-quarter sales forecast, blaming a "sharp pullback in global consumer spending." The index fell 5 percent, or 79.85, yesterday to close at 1516.85. It was down almost 10 percent this week.

The declines followed a massive rally Thursday, when the Dow surged more than 6 percent. It is not unusual for investors to sell off after a rally to secure profits, but disappointing economic data compounded the effect yesterday.

Weighing on investors was a Commerce Department report that retail sales fell by 2.8 percent last month compared with September, a far steeper drop than analysts expected.

It was "another ugly month," Brian Bethune, chief U.S. financial economist for IHS Global Insight, wrote in a research note.

Investors and analysts have come to expect gloomy economic data, and many assume that the country has already fallen into a recession. But they have been surprised recently by the severity of the downturn, which may indicate that the recession could be more difficult than some economists initially expected.

That includes a series of poor corporate earnings reports from companies suffering from falling consumer demand, which has forced them to cut back on spending, lower their profit expectations and plan layoffs.

J.C. Penney, preparing for the holiday shopping season, said that profit fell 52 percent during the third quarter and that it expects the weak environment to last into 2009. Its stock fell 10 percent yesterday, to $17.27 a share. Abercrombie & Fitch's shares fell 20.7 percent, to $17.79, after the retailer reported a 46 percent drop in third-quarter profit and lowered its earnings outlook for the year.

"The market is in the throes of pricing in all of the bad news," said James Cox, managing partner at Harris Financial Group in Richmond.

Economists have worried that the economic downturn will translate into a brutal holiday shopping season for retailers. But the data, from corporate earnings to retail sales, could have been worse and holiday shopping might not suffer as much as many expect, Cox said.

"When the time comes, consumers are going to get out there and do what they have always done: They're going to spend more than they thought they would," he said. "To the extent people have credit, they will use it."

Crude oil prices continued their decline yesterday, slipping $1.20, to $57.04 a barrel, on the New York Stock Exchange. Oil has fallen to its lowest price in more than a year, and some analysts now say it could fall to $50 a barrel by the end of the year.

That prospect has sapped investor enthusiasm for energy stocks. Conoco Phillips and Chevron were down 3.6 percent and 3.2 percent, respectively.