U.S. Stocks Decline as Retail Sales Data Add to Growth Concern

  • Cisco Systems weighs on technology shares, Retailers tumble
  • S&P 500 Index posts its worst weekly drop since August

What Did We Learn About Retail Today?

U.S. stocks declined, capping their first weekly drop since September, after weaker-than-expected retail sales data added to concern that growth remains uneven as policy makers consider raising interest rates as soon as next month.

Retailers and apparel companies led the drop after Nordstrom Inc.’s results missed analysts’ estimates, sending its shares down 15 percent. Cisco Systems Inc. slumped 5.8 percent, dragging technology companies lower after its outlook disappointed. Energy shares sank as oil fell to its lowest in more than two months.

The Standard & Poor’s 500 Index retreated 1.1 percent to 2,023.04, with the gauge posting its worst week since August as it closed at a three-week low. The Dow Jones Industrial Average declined 202.83 points, or 1.2 percent, to 17,245.24. The Dow had its biggest back-to-back drop in more than two months. The Nasdaq Composite Index lost 1.5 percent. About 7.7 billion shares traded hands on U.S. exchanges, 4 percent above the three-month average.

“The takeaway from today’s retail data is more concern about the pace and magnitude of any Fed rate hike cycle on a still uneven growth experience in the economy,” said Eric Wiegand, senior portfolio manager at the Private Client Reserve of US Bank in New York. “There was continued strength in the labor market, which is giving the Fed confidence to raise. But there’s softness with data beyond that and without oil moving meaningfully higher suggests we won’t see commodity price pressures.”

As investors evaluate the strength of the world’s largest economy, data today showed sales at retailers rose less than forecast last month as consumers pocketed the money saved after fueling up their cars. A separate report showed wholesale prices unexpectedly declined in October for a second month. Meanwhile, consumer sentiment climbed to a four-month high in a preliminary November reading as Americans took heart in lower interest rates and store discounts.

The S&P 500 has advanced just once in the eight sessions since Federal Reserve Chair Janet Yellen reminded investors that December’s policy meeting could bring the first rate increase since 2006. The U.S. equity benchmark has declined 4.1 percent since rallying to within 1 percent of a record on Nov. 3. Energy, technology and consumer discretionary shares have each dropped at least 4.5 percent this week, the most since August.

Fed Watch

Federal Reserve Bank of Cleveland President Loretta Mester said today a strengthening U.S. economy is ready for higher interest rates as she predicted growth of 2.5 percent to 2.75 percent through the rest of this year and next year. Fed officials yesterday stressed that monetary policy should be tightened only gradually after rates are increased.

Traders are currently pricing in a 64 percent chance of a Fed rate increase in December, up from as low as 27 percent last month. Odds increased sharply after last Friday’s stronger-than-expected October jobs report.

Economic data will have center stage as the majority of companies in the S&P 500 have now reported earnings results. About 73 percent beat profit estimates while just 44 percent surpassed sales expectations. Analysts are now predicting a 3.7 percent fall in earnings in the third quarter, an improvement on estimates for a 7.2 percent drop at the start of the season.

The Chicago Board Options Exchange Volatility Index rose 9.3 percent Friday to 20.08. The measure of market turbulence known as the VIX was up 40 percent this week, the most since August.

Consumer discretionary companies fell 2.7 percent on the softer-than-expected retail data and earnings results, the worst performer among the S&P 500’s 10 major groups. Discretionary companies saw their biggest weekly drop in almost three months.

Retailers Tumble

Nordstrom joined Macy’s Inc. in posting weak quarterly results, hinting at a dwindling appetite among consumers for department stores. Macy’s sank 4.2 percent, while Ross Stores Inc. and Kohl’s Corp. fell at least 6.4 percent. Fossil Group Inc. plunged 37 percent to a five-year low after its sales missed analysts’ estimates, fueling concern that the watch industry is mired in a slump and losing ground to wearable technology.

Nordstrom’s results renewed a retreat among apparel companies that sell their clothes in large department stores. Michael Kors Holdings Ltd. and PVH Corp. declined more than 4.7 percent following a brief reprieve yesterday after Kohl’s earnings topped estimates. Under Armour Inc. and Nike Inc. slumped at least 3.2 percent with the group marking its worst week in more than four years.

GameStop Corp. tumbled 17 percent, the most in more than a year. Pacific Crest Securities LLC downgraded the shares to the equivalent of hold from buy, citing struggling physical software sales as digital downloads of games affects growth. Among other retailers, Best Buy Co. slumped 5.7 percent to a more than two-month low.

Cisco Systems posted its steepest decline in two years after saying weaker global economic growth and the strength of the U.S. dollar are hurting international sales of its equipment. F5 Networks Inc. and Juniper Networks Inc. lost more than 3.1 percent, while Oracle Corp. sank 3.4 percent. Also weighing on the tech group, Facebook Inc. declined 3.8 percent and Apple Inc. decreased 2.9 percent, taking its slide this week to 7.2 percent, the most since August.

Energy Sinks

Energy companies in the benchmark slid for the seventh time in eight days, retreating 0.6 percent after an earlier drop of 1.6 percent. Oil saw a second weekly decline, falling to its lowest level in more than two months as U.S. crude stockpiles rose three times more than forecast. Chesapeake Energy Inc. fell 3.5 percent and Exxon Mobil Corp. slid 1.7 percent.

Perrigo Co. slid 6.2 percent, the most in 18 months, after Mylan NV failed to attract a majority of Perrigo shareholders to its $26 billion takeover offer. Generic drugmaker Mylan said about 40 percent of Perrigo holders tendered their shares by the Friday deadline, short of the 50 percent required to move ahead. Mylan rallied 13 percent, the most since April.

Yum! Brands Inc. also moved on company news, climbing 3.5 percent after the fast-food chain owner reported same-store sales at its restaurants in China grew an estimated 5 percent last month. Yum recently bowed to activist pressure, agreeing to spin off its China business from its U.S. operations.

Raw-materials companies in the benchmark rose 1.2 percent, trimming their worst weekly decline since September. Alcoa Inc. and fertilizer maker Mosaic Co. gained more than 1.7 percent.

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