Stocks Slide on Growth Worries

U.S. stock indexes closed broadly lower Friday as investors took profits from the market's recent run-up. A late burst of buying helped the market trim losses, with the S&P 500 index moving back above 1,000 after trading below that level for most of the session.

Equities weakened Friday as a drop in consumer sentiment joined other recent signs of lingering economic weakness. The University of Michigan's Consumer Sentiment Index fell to 63.2 this month from 66.0 last month. Data released Thursday showed a 0.1% drop in July retail sales. Together, these reports dampened the outlook for consumer spending and raised concerns that third-quarter economic growth might be slower than previously expected.

Traders apparently had discounted reports that the July U.S. consumer price index (CPI) was unchanged, while the core rate, which excludes food and energy prices, was up 0.1%; and that July industrial production rose 0.5%, while capacity utilization rose 0.4%.

On Friday, the 30-stock Dow Jones industrial average finished lower by 76.79 points, or 0.82%, at 9,321.40. The broad Standard & Poor's 500-stock index fell 8.64 points, or 0.85%, to 1,004.09. The tech-heavy Nasdaq composite index shed 23.83 points, or 1.19%, to 1,985.52.

Treasuries were solidly higher on safe-haven buying. The dollar index was higher. Gold and crude oil futures were lower.

For the stock market, "the weak link remains consumption, as awkwardly highlighted by the [consumer sentiment] report," says Action Economics. Earnings released Friday by retailers like J.C. Penney and Abercrombie & Fitch also added to the uncertainty about the consumer.

Next week's key economic reports could provide some guidance for the third quarter. Market players will be looking data on the Empire State index, the producer price index (PPI), housing starts, existing home sales, and the Philadelphia Fed index.

Bloomberg News reported Friday President Obama's administration is considering raising fees on larger financial firms to help cover costs of new regulation by an agency set up to safeguard consumer financial products. The proposed Consumer Financial Protection Agency "will be funded by fees, appropriations, and other transfers," Treasury spokesman Andrew Williams said. Firms with assets of more than $10 billion "will pay more for prudential and consumer supervision, while community banks will not pay any more for supervision than they do today. Non-banks will be assessed for the first time. The plan marks a further burden on banks such as Citigroup, Bank of America (BAC), and PMorgan Chase (JPM) that may be subjected to more government fees, aimed at shielding consumers and buffering taxpayers from excessive risk taking.

More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5% or more of their holdings, a level that former regulators say can wipe out a bank's equity and threaten its survival, according to a Bloomberg News report Friday. The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged.

Reuters reported Friday that U.S. bankruptcy filings rose 38% in April-June from a year ago, according to court data released the Administrative Office of the U.S. Courts. Overall, 381,073 bankruptcies were filed in the second quarter, up 15% from the first three months of the year and up 38% from a year ago. More than 16,000 businesses filed for bankruptcy in the quarter, the highest in the three-month period since 1993, according to the American Bankruptcy Institute. The number of business failures rose 64% from the same quarter a year ago and Chapter 11 business filings more than doubled in the first half, compared to the first half in 2008. Major second-quarter filings included Chrysler and General Motors, both among the 10 largest filings ever, which sent many of their suppliers into bankruptcy as well. In company news Friday, Abercrombie & Fitch (ANF) posted a second-quarter loss of $0.30 per share, vs. earnings per share of $0.87 one year earlier, on a 30% same-store sales drop and a 23% total sales drop. The company noted that its second-quarter gross profit rate was 66.5%, 360 basis points lower than a year ago.

J.C. Penney (JCP) posted breakeven second-quarter results, vs. $0.52 EPS one year earlier, on 9.5% lower same-stores sales and 7.9% lower total sales. Wall Street was looking for a loss of $0.01.

BofA/Merrill reportedly upgraded its investment rating on shares of Citigroup (C) to buy.

In economic news Friday, U.S. consumer sentiment dipped to 63.2 in August, according to the preliminary reading from the University of Michigan survey, after dropping nearly 5 points in July to 66.0. The index was 63.0 a year ago. The current conditions index fell to 64.9 from 70.5 in July (71.0 a year ago). The 6-month ahead outlook index dipped to 62.1 from 63.2 (57.9 a year ago). The 1-year ahead inflation index slowed to a 2.8% pace from 2.9% (4.8% last August). The 5-year ahead inflation guage also slowed to 2.9% from 3.0% (3.2% a year ago).

U.S. industrial production rose 0.5% in July, after a 0.4% decline in June, the first increase in nine months. May's 1.2% decline was revised up to -1.1%. That boosted capacity utilization to 68.5% compared to a revised 68.1% in June (was 68.0%). Manufacturing production rebounded 1.0% off of a 0.6% decline in June, with the motor vehicles and parts component surging 20.1%. Utility production declined 2.4% from a revised 0.9% gain in June (was 0.8%). Mining rose 0.8% after hefty declines all year.

The U.S. consumer price index was unchanged in July, with the core rate inching up 0.1%, compared to June's prints of 0.7% and 0.2%, respectively. Energy prices dipped 0.4% following a 7.4% surge in June, with gasoline down 0.8%. Housing costs declined 0.2% after a flat reading previously. The homeowners equivalent rent measure was unchanged. Food and beverage prices slipped 0.2%. Transportation costs rose 0.2%, with vehicle prices up 0.3%. Apparel prices rose 0.6%. Medical care prices edged up 0.2%. Tobacco prices rose 2.2%.

The European Union's statistics office Eurostat reported consumer prices in the 16 countries using the euro fell 0.7% in July for a 0.7% year-on-year drop -- deeper than the 0.6% fall initially estimated. It is the second consecutive month of prices declining in annual terms after June's 0.1% fall. The European Central Bank wants to keep inflation below, but close to 2%. It has made clear it did not want inflation to slow too much, but has also said there was only a very small risk of deflation, which it defines as prolonged price falls accompanied by expectations of more price declines.

Separately, Spain's gross domestic product dropped 1% quarter-on-quarter, slightly more than a Bank of Spain forecast of 0.9%. The GDP contracted 4.1% year-on-year, the sharpest fall since comparative data began in 1977.