Stocks retreat after 2 days of gains as investors worry consumers will hurt economy’s recovery

NEW YORK (AP) — The fear on Wall Street is that nervous consumers are going to short-circuit the economic recovery.

Stocks fell sharply Friday after investors were disappointed by media reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of this month. That’s a sign that consumers may well keep curtailing their spending as they worry about losing their jobs. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported an unexpected decline in retail sales. Investors were able to shake off that reading, but Friday’s consumer sentiment number had them bailing out of stocks and moving their money to the relative safety of government bonds. Treasury prices rose sharply, pushing their yields lower.

The Labor Department said the Consumer Price Index was flat in July after a slight increase in June. That had little effect on stocks but did help bond prices.

Meanwhile, the market shrugged off a report showing a bigger-than-expected increase in industrial production. Investors have come to expect an improvement in manufacturing activity; their concern now is the consumer.

A cautious outlook from J.C. Penney Co. for the early part of 2010 added to the market’s gloom. Chairman and CEO Myron E. Ullman III told investors in a conference call Friday, “The consumer is further behind the recovery than the statistics would indicate.” Until he sees the job market improve dramatically, Ullman said he thinks consumer “sentiment will be very cautious.” Penney released second-quarter results Friday showing a persistent sluggish sales trend.

In early trading, the Dow Jones industrial average fell 121.22, or 1.3 percent, to 9,276.97. The Standard & Poor’s 500 index fell 14.04, or 1.4 percent, to 998.69, while the Nasdaq composite index fell 30.28, or 1.5 percent, to 1,979.07.

More than four stocks fell for every one that rose on the New York Stock Exchange, where volume came to a light 289.4 million shares. Light volume can exaggerate the market’s movements.

In other trading, the Russell 2000 index of smaller companies fell 11.21, or 2.0 percent, to 563.98.

The declines Friday hurt the market’s chances at stretching its summer rally to a fifth week of gains. Going in to Friday’s session, the S&P 500 index had risen 15.2 percent in little more than a month and 49.7 percent since falling to a 12-year low in early March.

Investors have sent markets higher this summer encouraged by improvements in housing, manufacturing and corporate profits. But without the support of the consumer, the economy’s recovery is in jeopardy.

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.52 percent from 3.62 percent late Thursday. The drop in the 10-year yield is good news for consumers because it is closely tied to interest rates on mortgages and other loans.

The dollar mostly rose against other major currencies. Gold prices rose.

Overseas, Asian markets were mostly higher, with Japan’s main index hitting a ten-month high amid mounting optimism about a global economic recovery. The Nikkei stock average rose 0.8 percent.

European markets gave up early gains and turned lower in afternoon trading. Britain’s FTSE 100 dropped 1.1 percent, Germany’s DAX index fell 1.9 percent, and France’s CAC-40 fell 0.8 percent.

source: yahoo finance

Tags: consumer index, dow, economy, investors, nsadaq, nyse, wall street

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