U.S. Stocks Drop as Retail Sales Slump Spurs Consumer Concern

By Elizabeth Stanton

Nov. 14 (Bloomberg) -- U.S. stocks tumbled, capping a second straight weekly loss, as a record decrease in retail sales and weaker demand for mobile phones raised concern about the depth of the recession.

Sears Holdings Corp., Home Depot Inc. and Office Depot Inc. sank more than 7.6 percent on government data showing sales at retailers declined 2.8 percent last month. Qualcomm Inc., the biggest maker of mobile-phone chips, slid 5.4 percent and Motorola Inc. dropped 11 percent after Nokia Oyj predicted global shipments will shrink next year. The Standard & Poor's 500 Index erased about two-thirds of yesterday's 6.9 percent rally and extended its weekly tumble to 6.2 percent.

``The retailers are just confirming what everybody already knows; the economy is in bad shape, people are not spending,'' said Malcolm Polley, president of Stewart Capital Advisors in Indiana, Pennsylvania, which manages $1 billion. ``We have too many retailers and some of them will go away.''

The S&P 500 lost 4.2 percent to 873.29 as all 10 main industry groups retreated at least 2.8 percent. The Dow Jones Industrial Average decreased 337.94 points, or 3.8 percent, to 8,497.31. The Nasdaq Composite Index slipped 5 percent to 1,516.85. Twelve stocks fell for each that rose on the New York Stock Exchange.

'08 Slump

The S&P 500 has slumped almost 41 percent in 2008, poised for its worst year since 1931, as credit-related losses and writedowns at banks, brokerages and insurers worldwide topped $950 billion in the worst financial crisis since the Great Depression.

Federal Reserve Chairman Ben S. Bernanke, speaking at a panel discussion hosted by the European Central Bank in Frankfurt, said policymakers ``stand ready'' to take additional actions to help the economy. The Fed and ECB last month led central banks in the broadest coordinated interest-rate cut in history.

About 1.5 billion shares changed hands on the floor of the NYSE, in line with the three-month daily average.

Home Depot, the biggest home-improvement retailer, lost 7.6 percent to $20.54. Sears, the largest U.S. department-store chain, tumbled $6.28 to $38.27. Office Depot, the second-biggest office-supplies retailer, slid 17 percent to $2.03.

`Halt in October'

The 2.8 percent decrease in retail sales was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said. Purchases excluding automobiles also posted their worst performance.

``It reminds everyone how difficult the current environment is,'' Mark Freeman, a money manager at Westwood Management Corp. in Dallas, which oversees $7 billion, said of the data and lowered forecasts from some chain stores. ``Everyone should expect volatility to continue.''

Liz Claiborne Inc., the maker of apparel and Kate Spade handbags, fell 26 percent to $3.69 for the biggest drop in the S&P 500. Abercrombie & Fitch Co., the teen-apparel retailer, lost 21 percent to $17.79 after lowering its annual earnings forecast by a third. J.C. Penney Co., the third-largest U.S. department-store company, slid 10 percent to $17.27 after posting its fifth straight quarterly profit decline.

Qualcomm tumbled $1.88 to $32.94, while Motorola lost 50 cents to $4.08. Nokia, the world's largest maker of mobile phones, said industrywide handset sales will be lower this year than previously anticipated, forcing the company to deepen cost cuts. Global shipments will be about 1.24 billion this year, down from a previous prediction of 1.26 billion phones, and will shrink next year, Finland-based Nokia said in a statement today. Its American depositary receipts lost 11 percent to $12.59.

Semis Slump

Semiconductor companies in the S&P 500 tumbled 7.4 percent collectively. Intel Corp., the largest chipmaker, fell 7.7 percent to $13.32, a six-year low, for the biggest drop in the Dow average.

Earnings dropped 17 percent on average at companies in the S&P 500 that have reported third-quarter results, according to Bloomberg data. Companies from Best Buy Co. to Intel have cut forecasts this week. Analysts expect an 8.5 percent decline in full-year profits, estimates compiled by Bloomberg show.

JPMorgan Chase & Co. helped lead declines in financial companies, falling 7.3 percent to $34.47. Freddie Mac, the government-sponsored mortgage-finance company seized by the U.S. two months ago, said in a regulatory filing it may prevent JPMorgan from retaining the servicing contracts of Washington Mutual Inc., whose assets and branches it acquired in September.

Freddie's Request

Freddie Mac, which along with larger competitor Fannie Mae was removed from the S&P 500 in September after the companies lost more than 97 percent of their market value, today asked the Treasury Department for $13.8 billion after a record quarterly loss caused its net worth to fall below zero. Freddie Mac fell 8.2 percent to 67 cents.

Prologis sank 26 percent to $5.08, leading real-estate companies in the S&P 500 to a 10 percent drop. RBC Capital Markets lowered its price forecast for the world's largest warehouse developer to $10 from $16.

Hartford Financial Services Group Inc. jumped 21 percent to $12.65. The insurer that lost 79 percent of its market value in the past two months said it's buying a Florida bank for $10 million to become eligible for federal rescue funds. Hartford expects to qualify for $1.1 billion to $3.4 billion under Treasury Department guidelines.

`Level of Nervousness'

The S&P 500 turned positive for about 15 minutes in the final hour of trading today after Treasury Secretary Henry Paulson told CNBC the government's $700 billion rescue package is enough to stem the financial crisis.

The S&P 500 jumped the most in two weeks yesterday, including a 6 percent rally in the final hour of trading, as investors snapped up the cheapest energy shares on record and real-estate companies gained after CB Richard Ellis Inc. raised cash in a share sale.

``You cannot read anything significant into that,'' said London-based Justin Urquhart Stewart, director of 7 Investment Management. ``It just shows the level of nervousness and that is going to continue for some time. The background noise is going to be very poor indeed,'' he told Bloomberg Television.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.