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Slumping Retail Sales Bring Stocks Lower

Posted on: Thursday, 8 July 2004, 06:00 CDT

NEW YORK - Slumping retail sales sent stocks modestly lower Thursday as investors worried that a slower pace of consumer spending would further cool the economic recovery.

Wal-Mart Stores Inc., which reported weaker-than-expected June sales due to cooler weather in much of the country, joined Target Corp. and a number of other retailers in an overall lackluster retail showing. Consumer spending is the biggest catalyst in the economy, and investors worried about the impact the lack of spending would have on corporate earnings.

The retail reports overshadowed good news about jobs. The number of new first-time jobless claims fell to a three-year low and came in better than analysts expected. However, the creation of jobs still remains an issue after last week's disappointing payroll report for June. The light volume in Thursday's trading showed many investors were keeping to the sidelines.

"You look at the retail report, job creation, interest rates, whatever, and it creates this drab, uninspiring backdrop for the market that makes it harder to commit any money right now," said Jeff Kleintop, chief investment strategist for PNC Financial Services Group. "Volume is very light, but that's not a sign of complacency. It's a sign that investors are paralyzed by all these background issues."

In early afternoon trading, the Dow Jones industrial average fell 6.64, or 0.1 percent, to 10,233.65.

Broader stock indicators were narrowly lower. The Standard & Poor's 500 index was down 2.70, or 0.2 percent, at 1,115.63, and the Nasdaq composite index dropped 11.99, or 0.6 percent, to 1,954.09.

An influx of bargain hunters kept the major indexes from further losses, with a handful of investors looking past the current uncertainty in favor of focusing on economic fundamentals, analysts said. And with the major indexes down three of the last four sessions, some stocks were attractively priced for those with a high tolerance for risk.

"The market's been somewhat oversold over the past few days, particularly in semiconductors and pharmaceuticals," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "When you look at it, the economy's still doing well, productivity is high and interest rates are still very accommodative. So there's reason to be somewhat optimistic."

Wal-Mart, the nation's largest retailer, said its same-store sales - sales in individual stores open more than a year - climbed 2.2 percent in June, far from the 3.6 percent analysts had expected. Rival Target Corp.'s sales were similarly disappointing. Wal-Mart slipped 3 cents to $52.29, while Target fell 74 cents to $40.75.

J.C. Penney Co. Inc. gained $1.56 to $37.77 while Limited Brands Inc. was down 9 cents at $19.47 after the clothing retailers surpassed other retailers and reported stronger June sales.

Investors hoping for a strong second-quarter earnings season were not cheered by the retail reports, especially after warnings and bearish outlooks in the technology sector. Late Wednesday, Yahoo! Inc. reported earnings in line with Wall Street expectations, but investors were disappointed with the company's outlook for future quarters. Yahoo! slid $1.81 to $30.79.

Dow component Alcoa Inc. rose 6 cents to $32.83 after reporting earnings late Wednesday that were a penny shy of analysts' estimates.

Financial services company Cendant Corp. gave a positive earnings outlook, saying it would top its quarterly profit estimates by 2 to 3 cents per share. Cendant jumped 73 cents to $24.89.

Declining issues outnumbered advancers by nearly 3 to 2 on the New York Stock Exchange, where volume came to 719.31 million shares, compared with 660.05 million at the same point on Wednesday.

The Russell 2000 index of smaller companies was down 3.75, or 0.7 percent, at 568.28.

Overseas, Japan's Nikkei stock average fell 0.6 percent. In Europe, Britain's FTSE 100 closed up 0.5 percent,France's CAC-40 rose 0.3 percent for the session and Germany's DAX index gained 0.1 percent in late trading.

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