Weak Retail Sales Report Sends Markets Plummeting

NEW YORK, Jan. 14 -- Stocks plunged Wednesday as anxieties on Wall Street flared again amid a weaker-than-expected retail sales report, a new crop of corporate bankruptcies and continued debate over the release of federal bailout funds intended for the financial industry.

The Dow Jones industrial average fell more than 2.9 percent, or 248 points, to 8,200, with Citigroup leading the blue-chip index lower. The broader Standard & Poor's 500-stock index was off nearly 3.4 percent, closing at843, while the technology-heavy Nasdaq closed down 3.7 percent, to 1,490.

It was the sixth straight day of declines for the Dow, as investors digested the news of a delayed stimulus bill and back off the optimism that had fueled a brief New Year's rally.

"It's sinking in that maybe there won't be a quick recovery," said Michael Cuggino, president of the Permanent Portfolio Family of Funds in San Francisco. "On top of that, you've got infighting among Congress, the outgoing administration and the incoming administration over what to do with the provisions for the Troubled Asset Relief Program, not to mention the uncertainties of the stimulus package. It all adds up to a less-than-quick resolution" to the recession.

The 2.7 percent decline in December retail sales reported by the Commerce Department was more than twice as steep as the drop forecast by economists. Anthony Chan, chief economist for JPMorgan Private Wealth Management, chalked up the gap to a deeper-than-expected holiday discounting, a weaker-than-expected employment picture and a sharp decline in energy prices, which pushed down gasoline sales.

Chan is expecting January to be another rough month for retail.

"January depends heavily on gift card sales," which were stunted by the overall pullback in spending and by fears that the cards wouldn't be honored if the chains selling them slipped into bankruptcy, Chan said. "To the extent that there are less gift cards floating out there, retailers are panicking and you're continuing to see so much of the discounting that's out there now. So I would expect further weakness in January."

The retail industry's woes were underscored by Chapter 11 filings Wednesday by Goody's, a Knoxville-based merchant in the southeastern United States; and Gottschalks, a department store operator in the western part of the country. Nortel Networks, a telecommunications equipment maker that was a high flier during the technology boom, also filed for bankruptcy Wednesday.

The concerns driving the sell-off in stocks prompted investors to look for pockets of relative safety, driving up the price of U.S. Treasury notes and pushing down yields on the 10-year debt to 2.21 percent.

Financial stocks were closely watched on Wall Street following yesterday's announcement of a merger between the brokerage units of Citigroup and Morgan Stanley. Citigroup shares fell 23 percent, or $1.37, to $4.53. Morgan Stanley was off 8.9 percent at $17.19.

Among other financials, Bank of America was 4.2 percent lower at $10.20, while American Express sank 6.1 percent to $17.83.

Shares of Tiffany shed a nickel to $21.95 after the high-end jewelry chain said holiday sales plunged by more than a fifth, led by a 30 percent decline in the United States.

"Deteriorating global economic conditions were clearly reflected in cautious spending by Tiffany customers across the entire range of jewelry categories and price points," Tiffany Chairman and Chief Executive Michael J. Kowalski said in a statement. "We believe these conditions will continue well into 2009."

The plunge in U.S. trading followed overnight gains in Asia, where the Nikkei and Hang Seng indexes both registered increases of just under 0.3 percent. But stocks already were moving lower in European trading, with the FTSE 100 down 6 percent lower and Germany's DAX down 4.4 percent.