Traders are seen on the
floor of the New York Stock Exchange in New York on, November 27, 2006.
Wall Street suffered a sharp pullback Monday as investors returned from
the Thanksgiving weekend with questions about the strength of the retail
sector following a rare sales decline at Wal-Mart Stores Inc. [AP]
New York - Wall Street had its worst day in more than four months Monday as
the dollar weakened and concerns about the strength of the retail industry arose
following a rare sales decline at Wal-Mart Stores Inc. The Dow Jones industrials
fell 158 points.
Investors were uneasy after the dollar fell for the fifth straight day and
after Wal-Mart, the world's largest retailer, reported a 0.1 percent drop in
same-store sales, those from stores open at least a year. Same-store sales are
the industry standard for assessing a retailer's strength, and while overall
retail sales appeared strong last weekend, Wal-Mart's first deficit in a decade
raised concerns about the strength of consumer spending during the holiday
"There is now significant concern that the holiday retail season is going to
underperform," said Gregory Miller, chief economist at SunTrust Banks. "Traffic
doesn't necessarily translate into profits," he said, referring to reports of
crowded stores over the weekend.
As the dollar's slide continued, it hit a 20-month low against the euro
though it did for a time move higher against the Japanese yen. The dollar's fall
raised concerns that foreign investors were sensing weakness in the US economy
and would pull some of their investments from US markets.
Beyond the weak dollar and news from Wal-Mart, some retrenchment was to be
expected as investors seek to preserve their profits after stocks have soared
the past two months.
The Dow fell 158.46, or 1.29 percent, to 12,121.71, as 27 of the index's 30
stocks fell. It was the Dow's biggest slide since a string of triple-digit
declines in mid-July that followed disappointing profit reports and a spike in
oil prices amid tensions with Iran and North Korea.
Broader stock indicators also dropped sharply Monday. The Standard &
Poor's 500 index fell 19.05, or 1.36 percent, to 1,381.90, and the Nasdaq
composite index slid 54.34, or 2.21 percent, to 2,405.92.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to
4.53 percent, from 4.55 percent late Friday. Gold prices rose.
Light, sweet crude settled up $1.08 at $60.32 a barrel on the New York
Mercantile Exchange. Crude prices gained ground after an attack on an oil
facility in Iraq and comments by Saudi Arabia's oil minister that OPEC could
consider further production cuts next month.
Wall Street appeared little moved by a report from the Federal Reserve Bank
of Dallas that showed an index of manufacturing activity in Texas was
essentially unchanged in November.
Investors examining retail reports tried to determine whether an increase in
traffic at stores would translate to higher profits for retailers. Consumer
spending accounts for two-third of all economic activity, and Wall Street is
concerned that weak spending would prevent the slowing economy from achieving a
ShopperTrak RTC, which compiles sales data, estimates sales rose 6 percent on
Black Friday from a year earlier.
Regardless of the pace of retail sales, however, stocks have posted strong
gains in October and November, making Monday's retreat unsurprising.
"A little bit of profit-taking is healthy at this point, said Jim Russell,
director of core equity strategy for Fifth-Third Asset Management. "The market
went up a little bit too far, too fast. Folks have made big money just in the
past two or three months and are perhaps looking to lock in gains before the end
of the year."
He contends that while the weak dollar and the Wal-Mart news caught Wall
Street by surprise, investors shouldn't have fundamental concerns about the
health of the market.
"Certainly a little bit of cold water has been thrown on the market with the
results from Wal-Mart over the weekend," he said.
Miller remains concerned that the overall economy might be weaker than some
investors had believed when they sent stocks higher in recent months. The Dow
has closed at record levels 18 times since the beginning of October.
He also questioned whether retailers have run the risk of hurting profit
margins by offering steep discounts to lure shoppers during an increasingly
competitive Black Friday.
"The American consumer now expects that the holiday season isn't just a time
to spend a lot of money but a time to get some bargains."
Wal-Mart fell $1.29, or 2.7 percent, to $46.61 following its report, while
some retailers moved higher following reports of strong traffic in stores over
the weekend. Lowe's Cos. rose 40 cents to $1.33.
J. Crew Group Inc. fell $3.07, or 7.1 percent, to $40.21 after a CIBC analyst
lowered her rating on the clothing retailer based on valuation; the stock rose
27 percent last week following a strong profit report.
In other corporate news, Ford Motor Co. fell 36 cents, or 4.2 percent, to
$8.16 after announcing it plans to obtain about $18 billion in financing to
shore up its balance sheet and fund its restructuring.
Swift Transportation Co. rose 75 cents, or 2.7 percent, to $28.36 after the
trucking company rejected an offer from its largest shareholder to acquire the
company for $29 per share, or about $2.2 billion.
Several hotel companies lost ground after an AG Edwards & Sons Inc.
analyst lowered his rating on the stocks to "Hold" from "Buy." Hilton Hotels
Corp. fell $1.70, or 5 percent, to $32.10, while Marriott International Inc.
fell $1.54, or 3.3 percent, to $44.91. Starwood Hotels & Resorts Worldwide
Inc. was down $1.92, or 2.9 percent, to $63.46.
The Russell 2000 index of smaller companies was down 20.18, or 2.55 percent,
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock
Exchange, where consolidated volume came to 2.72 billion shares.
Overseas, Japan's Nikkei stock average closed up 0.96 percent. Britain's FTSE
100 closed down 1.18 percent, Germany's DAX index fell 1.77 percent, and
France's CAC-40 was down 1.50 percent.