Consumer worries down stocks
Russell 2000 (NYSE: IWM) fell hard, with the Dow on its heals, on fears of a slowdown in U.S. consumer spending. The small-cap index lost 16.94 points, or 2.17%, to 762.87. The Dow Jones Industrial Average (INDU) dropped 207.61 points, or 1.57%, to 13,028.92.
Economic trends forced Wal-Mart Stores Inc. (NYSE: WMT) to lower its full fiscal year 2008 earnings guidance, the Bentonville, Ark.-based retailer said before the opening bell.
Home Depot Inc. (NYSE: HD), the largest home-improvement retailer, reported that its second-quarter profit fell 15% to $1.59 billion, from $1.86 billion a year earlier, due to declining sales.
Investors took that as a sign that the seemingly tireless American consumer is feeling the pinch of a slump in the housing sector that has caused a wave of mortgage delinquencies and foreclosures and resulted in a tighter lending environment.
If that’s the case, it could spell trouble for the economy. Retail sales account for half of consumer spending, which it turn makes up about 70% of gross domestic product.
With fears of a decline in consumer spending weighing on investors’ minds, the bears took control of trading and never looked back.
But stocks actually began the day in the green following modestly positive economic data.
Wholesale prices rose more than expected in July, but core producer prices came in below economists’ projections, the U.S. Labor Department reported before the opening bell.
The producer price index added 0.6% in July, following a drop of 0.2% in June. Economists were expecting a rise of just 0.1%.
However, the core price of finished goods, which excludes the volatile costs of food and energy, increased 0.1%, below the forecasted 0.2%. Core prices added 0.3% in June.
For the 12 months through July, wholesale prices are up 4%, while core prices are up 2.3%.
The data suggest that inflation is under control but has not fallen low enough for the U.S. Federal Reserve to consider cutting interest rates.
The consumer price index for July, a more closely watched inflation gauge, will be released on Wednesday, August 15.
Separately, the U.S. Commerce Department reported that the country’s trade deficit unexpectedly narrowed 1.7% to $58.1 billion in June from $59.2 billion in May. Economists were expecting the trade gap to rise to $61 billion.
Year-to-date exports have increased 11% to $779.2 billion, while imports have added 4.4% to $1.13 trillion.
Stocks stayed in the green just over half an hour, slipping below the flat line shortly after 10 a.m. ET.
