Tough day on Wall Street

Stocks tumble in late-session selloff as investors bail out of banks, techs and commodity shares. Oil prices dip on strong inventory report.

Stocks tumbled Thursday, with financial, commodity and technology shares leading the charge lower as investors continued to worry about the credit market crisis and the strength of the consumer.

The Dow Jones industrial average lost 0.9 percent. The S&P 500 index lost 1.3 percent. The Nasdaq composite declined 1 percent.

Small caps were hit harder with the Russell 2000 index falling 1.4 percent.

Treasury prices rallied, lowering the corresponding yields. The dollar recovered a bit against the euro but fell versus the yen. Oil and gold prices slipped.

Stocks were mixed throughout the morning as investors mulled steady consumer inflation, stronger readings on manufacturing and the latest credit market troubles - amid a decline in oil prices.

But the market began deteriorating heading into the afternoon, reflecting the recent pattern of gyrating throughout the session and then making a decisive move near the close.

And more selling may be on tap, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

He said that with the exception of Tuesday's blockbuster rally, Wall Street's been pretty negative of late and that could continue leading into the Thanksgiving holiday next week.

Friday brings readings on industrial production and capacity utilization, as well as a speech from Federal Reserve Governor Randall Kroszner, a voting member of the central bank's policy committee.

The Consumer Price Index (CPI) rose 0.3 percent in October, matching September's rise and meeting forecasts. So-called core CPI, which excludes food and energy, rose 0.2 percent, also matching September and also in line with forecasts.

Investors have been looking for signs that pricing pressures are remaining mild, even with lower interest rates and higher oil and gas prices threatening to drive up inflation.

The weekly jobless claims report showed a surprisingly large jump in new claims last week.

The fact that the CPI came in as expected was probably positive, although it shows inflation pressures remain a risk, said Douglas Roberts, chief investment strategist at Channel Capital Research.

He said the rise in jobless claims was worrisome in that if the trend continues to higher levels of unemployment - at the same time that pricing pressures remain steady - that will pressure the already taxed consumer. Consumer spending fuels around two-thirds of the economy.

But crude inventories came out kind of confirming that the pressures from oil are dipping in the short term, Roberts said.

U.S. light crude oil for December delivery fell 66 cents to settle at $93.43 a barrel on the New York Mercantile Exchange after the weekly oil inventories report showed a surprise gain in crude supplies last week.

Two more banks were in focus, amid ongoing questions about the fallout from the credit market crisis.

Barclays Capital, a unit of Barclays Group PLC, said it took $2.7 billion in writedowns related to the credit market. The figure was smaller than what some analysts were calling for a week ago. Additionally, the U.K.-based bank said that 2007 profits are running ahead of last year's performance.

Additionally, Swiss financial behemoth UBS could take up to $7.1 billion in writedowns, related to the deteriorating mortgage market, according to a Wall Street Journal article Thursday.

Also reflecting the credit market turmoil, General Electric confirmed reports that a short-term bond fund it manages has suffered big losses in mortgage-backed securities and that as a result, outside investors have dumped their holdings. However, the conglomerate said that the impact won't be felt in current quarter or full-year earnings. GE shares lost 1.8 percent.

A variety of bank stocks retreated, including JP Morgan, Citigroup, Morgan Stanley and Merrill Lynch.

J.C. Penney said that third-quarter earnings fell from a year ago and warned that full-year profits will miss forecasts as well.

In other news, Kraft Foods said it will sell its two dozen Post cereals to Ralcorp Holdings in a stock deal worth $1.7 billion, plus the assumption of debt.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost 4 to 1 on volume of 1.47 billion shares. On the Nasdaq, decliners topped advancers by 7 to 3 on volume of 2.34 billion shares.

In addition to CPI and jobless claims, two regional manufacturing reports were released Thursday.

The Philadelphia Fed index rose to 8.2 from 6.8 in November, topping forecasts for a dip to 5.0. Earlier, the NY Empire State index fell to 27.4 in November from 28.8 in October, versus forecasts for a steeper drop to 18.0.

Treasury prices rose, lowering the yield on the 10-year note to 4.15 percent from 4.25 percent late Wednesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar rebounded a bit against the euro and declined versus the yen.

COMEX gold for December delivery fell $27.40 to $787.30 an ounce.

Retailers brace for gloomy holidays, gloomier '08

Penney joins Macy's and Wal-Mart in setting disappointing expectations for crucial seasonal sales and seeing more problems next year.

Penney expects fourth-quarter same-store sales to decline in the low-single digits.

Following Wal-Mart and Macy's, J.C. Penney on Thursday became the latest retailer to warn that housing, gas prices and credit woes will dent 2007 holiday sales and stifle discretionary spending in 2008.

Penney's warning is especially troubling because retail analysts had picked the chain to be one of the standouts during the holiday season, citing its unique merchandise and competitive prices.

We're in a very difficult selling environment, J.C. Penney CEO Myron Ullman told analysts Thursday in a conference call to discuss the company's third-quarter results. Ullman said he expects a weakening sales environment to continue into 2008.

J.C. Penney's stock fell more than 5 percent Thursday after the department store chain reported a 9 percent drop in its third-quarter profits.

We came out of September expecting a strong start for early fall. That didn't happen. This is the first time that we're seeing a real change in consumer sentiment, Ullman said.

He blamed weak housing conditions, mortgage and credit market concerns, and what he called the psychological effect of fuel prices for eroding Penney's profit and sales last quarter.

More importantly, the retailer warned on its full fiscal-year profit, saying that it expects crucial fourth-quarter same-store sales, which measures sales at retail stores open at least a year, to decline at a low single digit percentage.

Fiscal year profit is now forecast to be between $4.63 and $4.78 a share, down sharply from the previous guidance of $5.50 a share. Analysts had expected the retailer to earn $4.85 a share for the year ending in January.

The fourth quarter typically accounts for more than half of merchants' annual profit and sales.

Earlier this week, Home Depot and Wal-Mart both signaled their concern about a spending slowdown in the months ahead and into 2008. Penney's rival Macy's cut its fourth-quarter same-store sales estimate Wednesday.

The outlook expressed by Penney and earlier by Wal-Mart and Macy's signals that consumer spending is slowing relative to the beginning of the year, said Wayne Hood, analyst with BMO Capital Markets.

Based on these weak holiday sales forecast and more to come, Hood said he's almost written off the holiday season.

The holiday shopping season will be over in three weeks. I'm more concerned about what the guidance from retailers for next year, he said.

Most retailers will have a very guarded outlook for 2008. I expect conservative sales and inventory guidance for next year. If retailers cut back on spending on IT (information technology) projects, cut travel budgets and tightly control their discretionary budgets, then that could have a direct impact on the economy, Hood said.

To his point, Ullman said Penney was planning very conservatively on expenses for next year. We won't be aggressive on spending in discretionary projects, he said.
Holiday season in peril?

Ullman said Penney's mall-based stores were particularly impacted by a steep drop in traffic during the quarter.

Ullman said having great merchandise and prices wouldn't matter if consumers curtailed their spending in the months ahead. Besides economic factors, Ullman said unseasonable warm weather hurt cold-weather apparel sales in the third quarter.

The gloomy forecast cast a chill on the retail industry.

After hearing one of the more dramatic reductions in earnings and cash flow forecasts we've seen in some time, we no longer expect Penney's credit profile to improve, Carol Levenson, analyst with bond research firm GimmeCredit, wrote in a note Thursday. The firm downgraded Penney's debt to stable from improving.

We still expect [Penney] to outperform its peers, but clearly its market segment is getting hit inordinately by the consumer environment, she said.

Marshal Cohen, chief retail analyst with NPD Group, agreed that consumers were hesitating with their spending. I don't think consumers will pull the plug on spending but they're not seeing anything new this year that they have to have, Cohen said.

Ullman said Penney will offer deeper holiday discounts in order to boost fourth-quarter sales, adding that he expects gross margins to decline as a result of increased promotions.

We have to maintain a flow of fresh merchandise through the season, he said. It's still early in the holiday season. The weather is more seasonable now so we'll see how consumers respond to that.

Going into next year, Ullman said Penney still intends to stick to its growth plan of opening 50 stores a year.

But we will look at each year based on market conditions and opportunities in real estate, he said. He also said Penney would modify its inventory orders for next spring based on sales trends.

Bernard Sosnick, analyst with Oppenheimer & Co., hasn't changed his buy rating on Penney despite the warning.

Relative to Macy's performance and other mall-based retailers, Penney's results weren't terrible, Sosnick said. Penney's apparel sales are good, it had a 6 percent jump in back-to-school sales. Where it took a hit was in sales of big ticket items and home goods.

How much weather was a factor, we don't know. It's also hard to determine how much a consumer spending slowdown was a factor, Sosnick said. Yes, retailers are speaking cautiously about the holidays. Retailers respond quickly to trends. They will batten down the hatches to ride through the coming storm.

For his part, NPD's Cohen believes retailers are more optimistic about the holiday season than they are letting on.

I think we are being set up for lower expectations. Revenues will see low growth, but it's still growth. Profits will suffer because everyone will cuts prices to get sales going. But that's OK because companies will just blame the economy for why profits didn't come, Cohen said.

Source - CNN Money

Retail sales sputter in October

Total sales increased 0.2%, in line with estimates but ex-auto sales miss forecasts; September results revised higher.

Retail sales grew at a sluggish pace in October as many cash-strapped Americans continue to struggle with higher gas prices, less equity in the home and tighter credit availability.

The Commerce Department said total sales rose 0.2 percent last month from a revised gain of 0.7 percent in September. September sales originally were reported to have increased 0.6 percent.

Economists surveyed by Briefing.com had forecast a rise of 0.2 percent for the month.

Stripping out volatile auto sales, retail sales rose a weaker 0.2 percent versus a 0.4 percent increase in September.

Economists, on average, had forecast an ex-auto gain of 0.3 percent for the month.

Furniture and home furnishing stores were the hardest hit, posting a sales decline of 0.9 percent in the month. Department stores suffered a 0.5 percent sales decline, sales at sporting goods, book and music stores fell 0.4 percent while e-commerce sales declined 1 percent.

Elsewhere, clothing sellers logged a mediocre 0.1 percent gain. Electronic chains saw an anemic 0.1 rise in sales at their stores last month.

Many clothing chains last week blamed warmer-than-expected weather for weak October same-store sales, which measures sales at stores open at least a year.

Auto sales rose just 0.2 percent while higher gasoline prices boosted gasoline station sales by 0.8 percent.

As expected, last month's sales softness is spreading concerns about this year's holiday shopping season, which officially kicks off next week after the Thanksgiving holiday.

Fourth-quarter retail sales can account for as much as 50 percent of merchants' annual profits and sales.

This is the worst performance in five years and we expect a further deterioration as consumers cut back in the face of soaring gas prices, falling stock prices and the continued disaster in housing, Ian Shepherdson, chief U.S. economist with High Frequency Economics, wrote in a note Thursday.

Already the past three months have been grim in general merchandise, furniture, electronics and clothing . The holiday season will be terrible, he said.

The National Retail Federation expects this year's holiday sales in November and December to grow 4 percent, or weaker than last year's 4.6 percent increase.

Source - CNN Money