Profit woes, unemployment data sparks early slide

Small-cap stocks plunged early Thursday, dismissing an upbeat retail sales report to focus on dreary corporate profit reports and another somber reading on the employment picture. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was off 9.39, or 2.10% at 438.55, while the Dow was down 2.70% and the big-cap barometer was now at the lowest point since November.

The retail sales report came in at plus 1.0%, which was quite a bit better than the forecast for a slide of 0.7%. Although the upside surprise did help lift stock index futures off the pre-market lows and might have had a brief supportive tone into the regular stock market opening, the general perception of the retail sales report was that it was a “head-scratcher.”

“This increase broke a record six-month string of declines during which spending fell at a 21.1% annualized rate,” Steven Wood, chief economist with Insight Economics, said via email. “However, both November's and December's earlier estimated declines were revised to be modestly deeper. Despite this month's gain, retail sales have fallen at a 16.3% annualized rate over the past three months. Over the past year, retail spending has decreased by a near record 9.7%. Spending at motor vehicle dealers jumped by 1.6% despite a 7.1% decline in unit sales, which is puzzling,” Wood said.

The rise in retail sales also didn’t seem to fit with anecdotal reports on store traffic and consumer retrenchment amid a deepening recession and rising unemployment. Speaking of unemployment, the weekly claims report showed that 623,000 Americans were forced to file for unemployment benefits last week, which was a mild dip from last week’s 26-year peak, but still a larger number than forecast. The number of workers forced to remain on unemployment rolls rose to a new record high and the four-week moving average on claims was at a 26-year high. Simply put, . . .

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