Stocks sag as warning signs flash
Fear is driving financial markets, temporarily relegating greed to the passenger seat.
Stocks slumped Wednesday after retail sales data fell short of economic forecasts, raising concerns about the pace of consumer spending amid a broader slowdown in global economic growth.
The Dow Jones industrial average fell 187 points, or 1.1 percent, to close at 17,428. The blue-chip index is on track for its fourth straight day of losses, having fallen more than 500 points over that period.
The Standard & Poor's 500 fell 12 points, or 0.6 percent, to 2,011 points, while the Nasdaq composite index decreased 22 points to 4,639. The yield on the 10-year Treasury note sank to 1.84 percent, as investors sought refuge from volatile equity markets in government bonds.
Investors seemed spooked by a report from the U.S. Commerce Department showing that retail sales declined 0.9 percent in December, the largest drop since January of 2013. Forecasters had expected only a 0.1 percent dip, so the big miss came as a surprise to investors.
"The December retail sales report was disappointing," said Chris Christopher Jr., an economist with HIS, in a client note. "After a very strong showing in November and October, shoppers decided to hang low."
The weak December sales figures shows that, at least for now, the U.S. economy is not getting the lift that many analysts expected from a more than 50 percent decrease in oil and gas prices since June. Forecasters had predicted that saving money at the pump would allow consumers to boost their spending in other areas.
Other factors also are weighing on investors' minds. Tumbling prices and wages in the eurozone, coupled with slowing growth in China and Japan, are raising concerns that a broad deceleration overseas could restrain the U.S. economy.
The Federal Reserve said Wednesday that the economy expanded at a moderate pace in December and early January. But the central bank's "Beige Book" report also noted that wage growth remain modest, with gains seen only by experienced workers with specialized technical skills.
Weak quarterly earnings reports from bellwether companies including Alcoa (AA) and JPMorgan Chase (JPM) are also stirring fears that corporate profits are waning.
Despite the volatile stock market, other signs suggest the U.S. economy is picking up speed.
Analysts point out that, despite the December dip, retail sales for the entire holiday period were the strongest since 2011. More broadly, experts think the economy will enjoy healthy growth this year, with most forecasting the country's gross domestic product to expand at least 3 percent.
"We are puzzled by this dismal retail sales report -- all signs are pointing toward a healthier consumer with solid job growth, continued wealth gains, lower gasoline prices and lower interest rates," analysts with Bank of America Merrill Lynch said in a note. "We therefore see today's report as a blip in an otherwise solid trajectory for consumer spending."
As the job market improves, consumers and small businesses are increasingly confident about their financial prospects, added Jennifer Lee, a senior economist with BMO Capital Markets.