Lousy retail sales, slumping banks stoke sellers

Small-cap stocks got dragged through the mud again today, as renewed worries about the health of the international banking system came back to the forefront. Concerns about the financial and credit crisis clearly have spread into the consumer psyche as well, as retail sales posted a record plunge in December. The Russell 2000 (NYSE:IWM) closed down 20.61, or 4.35%, at 453.17, generating the largest one-day drop of the New Year. The market slipped to the lowest intraday and closing levels of the year and the Russell is now down 9.2% for 2009, on target to eclipse January of 2008, which tumbled 6.8% and was the worst January in at least 15 years. The Dow is now off 6.5% for the year, while the S&P 500 is down 6.7%.

The market was already on the defensive this morning following a bout of bank selling in Europe overnight. Big players such as HSBC, Deutsche Bank and Commerzbank were all hit hard heading into the U.S. session, and Citigroup Inc. (NYSE:C) picked up the selling baton with fury, sinking 22% amid worries about debt writedowns into quarterly reports, sales of assets to raise cash and a bump up in the earnings release date. While Citigroup was the most obvious whipping boy of the batch, bank stocks in general were not coping well, with the KBW Banking Index down 5%.

And into that maelstrom came this morning’s retail sales report for December. We all knew it was a crummy month, individual stores already told us that; but the market was looking for a decline of 1.2% and got blindsided with a whopping decline of 2.7% in the headline figure and a record plunge in the ex-auto sales of 3.1%. The “glass half full” crowd will note that sales were exaggerated by a huge decline in gasoline prices, but even taking that into account, it was a troubling number for an economy that is dependent on ringing sales registers.

“Consumer spending is clearly in recession, driven by accumulating job losses, falling housing prices, the financial market turmoil, and the recent seizing up of the credit markets,” Steven Wood, chief economist with Insight Economics, said . . .

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below