Stocks Extend Downtrend On Disappointing Retail Sales Data - U.S. Commentary

(RTTNews) - With traders reacting to disappointing retail sales data, stocks moved sharply lower over the course of the trading day on Friday. The losses on the day extended a recent downtrend by the markets, with the S&P 500 closing lower for the seventh time in eight sessions.

The major averages ended the day firmly in negative territory, just off their lows for the session. The Dow tumbled 202.83 points or 1.2 percent to 17,245.24, the Nasdaq dove 77.20 points or 1.5 percent to 4,927.88 and the S&P 500 slumped 22.93 points or 1.1 percent to 2,023.04.

The sell-off on the day contributed to a sharp drop for the week, with the major averages ending a six-week winning streak. The Nasdaq plunged by 4.3 percent, while the Dow and the S&P 500 plummeted by 3.7 percent and 3.6 percent, respectively.

The continued weakness on Wall Street came following the release of a report from the Commerce Department showing U.S. retail sales rose less than expected in the month of October.

The report said retail sales inched up by 0.1 percent in October, while revised data showed that sales were virtually unchanged in September. Economists had expected sales to climb by 0.3 percent.

Excluding a pullback in auto sales, retail sales rose by 0.2 percent in October following a revised 0.4 percent drop in September. Ex-auto sales were expected to increase by 0.4 percent.

While a separate Labor Department report showed an unexpected drop in producer prices in October, analysts said the data shouldn't prevent the Federal Reserve from raising interest rates next month.

The Labor Department said its producer price index for final demand fell by 0.4 percent in October after sliding by 0.5 percent in September. Economists had expected the index to rise by 0.2 percent.

Excluding food and energy prices, core producer prices still dropped by 0.3 percent, matching the decrease seen in the previous month. Core prices had been expected to inch up by 0.1 percent.

Meanwhile, traders largely shrugged off a report from the University of Michigan showing a bigger than expected improvement in consumer sentiment in November.

The University of Michigan said the preliminary reading on its consumer sentiment index for November rose to 93.1 from the final October reading of 90.0. Economists had expected the index to climb to 92.0.

Sector News

Retail stocks turned in some of the worst performances on the day following the disappointing sales data. The Dow Jones Retail Index plunged by 3 percent to its lowest closing level in over a month.

Upscale fashion retailer Nordstrom (JWN) posted a steep loss after reporting weaker than expected third quarter earnings and lowering its full-year guidance. GameStop (GME) and J.C. Penney (JCP) also fell sharply.

Substantial weakness was also visible among networking stocks, as reflected by the 2.2 percent loss posted by the NYSE Arca Networking Index. Cisco (CSCO) led the way lower after reporting better than expected fiscal first quarter results but providing disappointing guidance.

Reflecting weakness in the broader technology sector, internet, computer hardware, and software also moved notably lower.

On the other hand, some chemical, natural gas, and biotech stocks bucked the downtrend by the broader markets. Within the biotech sector, Illumina (ILMN) posted a strong gain on news it will replace Sigma-Aldrich (SIAL) in the S&P 500 Index.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower following the overnight weakness on Wall Street. Japan's Nikkei 225 Index fell by 0.5 percent, while Hong Kong's Hang Seng Index plunged by 2.2 percent.

The major European markets also came under pressure on the day. While the German DAX Index dropped by 0.7 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index both slumped by 1 percent.

In the bond market, treasuries moved to the upside on the heels of the disappointing retail sales data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.9 basis points to 2.28 percent.

Looking Ahead

Another batch of U.S. economic data may drive trading next week, with traders likely to keep an eye on reports on consumer prices, industrial production, housing starts and regional manufacturing.

The minutes of the Fed's most recent monetary policy meeting are also likely to attract attention amid concerns about the outlook for rates.

On the earnings front, retail giants Wal-Mart (WMT), Home Depot (HD), Target (TGT), Staples (SPLS), and Best Buy (BBY) are among the companies due to report their quarterly results next week.