Stocks lost ground Thursday after a weaker-than-expected retail sales report revived worries about consumer spending and the durability of the current economic recovery.
The Dow Jones industrial average fell 115 points, or 1.2%, to 9,502.80, hurt by 3M (MMM ), Wal-Mart (WMT ), and profit-taking in Procter & Gamble (PG ) after yesterday's jump.
The tech-heavy Nasdaq composite index lost 22.23 points, or 1.46%, to 1,496.89. And the broader Standard & Poor's 500 index declined 10.70 points, or 1.05%, to 1,009.56.
On Friday, the market will get more economic data to digest. Economists expect the University of Michigan's consumer sentiment index to come in at 96.7 for the preliminary reading for June -- virtually no change from May's final reading of 96.9.
In addition, industrial production for May is expected to rise 0.3%, and capacity utilization to inch up to 75.7% from 75.5 last month.
On Thursday, the market tumbled after the report showing May retail sales fell 0.9%, lower than the consensus forecast of a 0.2% decline. Excluding autos, sales were up 0.4%. The report suggests that the U.S. consumer is pulling back on spending and raises questions about the strength of the economic recovery. The slowdown in consumer spending buys the Federal Reserve some time in raising interest rates, and adds credence to the view that spending strength in the prior two quarters was temporarily boosted by tax relief, says S&P MMS.
Meanwhile, the producer price index (PPI), a measure of inflation at the wholesale level, fell 0.4% amid lower energy prices. The core PPI, which excludes food and energy, was flat. S&P MMS had expected the overall PPI to drop 0.1% in May and the core index to rise 0.1%. S&P says the data highlights the lack of pricing power currently facing corporations and should allow the Fed to keep rates on hold.
In addition, initial weekly jobless claims rose 6,000. But there was little reaction to this report.
Among stocks in the news Thursday, Tyco International (TYC ) shares jumped about 34% on reports that the IPO of its CIT Group unit was approved by the Securities and Exchange Commission. Merrill Lynch and JP Morgan reportedly upgraded the stock today.
In the tech sector, Microchip Technology (MCHP ) gained after the chip maker raised first quarter guidance. S&P, CS First Boston, Morgan Stanley, and Merrill Lynch raised earnings estimates on the news.
Lucent Technologies (LU ) says it sees an improvement in the third quarter loss (pro forma) from continuing operations from the $0.20 second quarter loss per share. But the telecom gear maker expects third quarter revenue to decline sequentially by about 10%-15%. The stock fell about 5% on the news.
Heinz (HNZ ) shares fell after the food maker announced that it will spin off its pet food, StarKist tuna, and private-label soup and baby food businesses, and merge them with Del Monte Foods (DLM ). CS First Boston says this move gets rid of businesses that remain in decline and makes Heinz more attractive for someone else to acquire.
Financial, retail, and advertising stocks were the biggest drags on the market averages. Among the better-performing groups: pharmaceuticals and utilities.
Treasuries closed higher in price, but off their best levels of the session, after the weak retail sales data raised questions about the strength of the economic recovery. The weak PPI data and drop in equities also lent support.
The 10-year note set a new three month high at 100-03 to yield 4.862% before mild profit-taking pared the rally, says S&P MMS.
European markets were lower. In London, the Financial Times-Stock Exchange 100 index ended down 79.80 points, or 1.64%, to 4,771.90 amid some corporate profit warnings and the weak U.S. retail sales report.
In France, the CAC 40 declined 47.43 points, or 1.18%, to 3,957.33. And in Germany, the DAX Index fell 40.05 points, or 0.89%, to 4,470.14.
In Asia, the markets finished lower. In Japan, the Nikkei fell 182.22 points, or 1.617%, to close at 11,144.84 due to futures-led selling. In Hong Kong, the market lost 28.64 points, or 0.26%, to close at 11,119.33.