RTTNews - Stocks saw substantial weakness during trading on Wednesday, as disappointing retail sales offset some of the recent optimism about the outlook for the economy. The major averages all moved sharply lower after ending the previous session mixed.

The weakness in the markets came after a report from the Commerce Department showed that retail sales unexpectedly fell for the second consecutive month in April after showing back-to-back increases in the first two months of the year.

The report showed that retail sales fell 0.4 percent in April following a revised 1.3 percent decrease in March. Economists had expected sales to come in unchanged compared to the 1.2 percent decrease originally reported for the previous month.

Noting that the increases in sales seen earlier this year were the most significant green shoots in the economic landscape, Chris Low, chief economist at FTN Financial, said, Back-to-back declines in sales in March and April throw the economic recovery into doubt.

In other economic news, a separate report from the Commerce Department showed a continued decrease in business inventories in the month of March. The report showed that business inventories fell 1.0 percent in March following a revised 1.4 percent decrease in February.

Meanwhile, shares of Intel (INTC) ended the day modestly lower after the European Commission fined the semiconductor giant a record 1.06 billion euros for allegedly abusing its dominant position on the market for computer chips known as x86 central processing units.

Intel president and CEO, Paul Otellini said the company takes strong exception to the decision, arguing that it ignores the reality of a highly competitive microprocessor marketplace. Otellini added that Intel would appeal the decision.

On the earnings front, department store operator Macy's (M) reported a first quarter adjusted loss that came in narrower than analysts had been expecting. Nonetheless, shares of Macy's fell 6.7 percent, as the weak sales data weight on the retail sector.

In other news, American International Group CEO Edward Liddy appeared before lawmakers, attempting to defend the steps the beleaguered insurer has taken to reduce the risks it poses to the financial system.

We have a plan to repay the American taxpayer, Liddy told the House Oversight and Government Reform Committee. AIG will emerge as a much smaller, more nimble company.

The major averages all closed firmly negative, with the Nasdaq ending the session at its worst level of the day. The Dow fell 184.22 points or 2.2 percent to 8,284.89, the Nasdaq closed down 51.73 points or 3 percent at 1,664.19 and the S&P 500 fell 24.43 points or 2.7 percent to 883.92.

Sector News

With the weak retail sales data raising concerns about the outlook for demand, steel stocks turned in some of the market's worst performances. The Amex Steel Index closed down 8.7 percent, pulling back further off its recent seven-month closing high.

Cliffs Natural Resources (CLF) turned in one of the sector's worst performances, closing down 19.8 percent after cutting its quarterly dividend and announcing a public stock offering. With the loss, Cliffs pulled back further off the four-month closing high it set last Friday.

Substantial weakness was also visible among housing stocks, as reflected by the 6.8 percent loss posted by the Philadelphia Housing Sector Index. Steep losses by Radian Group (RDN) and Hovnanian Enterprises (HOV) helped to drag the index down further off its recent highs.

Banking stocks also pulled back further off their recent highs, as traders cashed in on recent strength in the sector. The Kbw Bank Index fell 6.5 percent, adding to the losses posted in the two previous sessions and moving further off last Friday's four-month closing high.

Most of the other major sectors also showed notable declines over the course of the trading day, with significant weakness visible among real estate, transportation, and oil service stocks. The losses by oil service stocks came as the price of oil fell $0.83 to $58.02 a barrel.

Meanwhile, some drug stocks bucked the downtrend by the broader markets, resulting in a 0.5 percent gain by the Amex Pharmaceutical Index. With the modest gain, the index ended the session at its best closing level in almost three months.

Dow Components

A vast majority of the Dow components ended the session in negative territory, contributing to the substantial loss posted by the blue chip index. Of the thirty Dow components, only six closed above the unchanged line.

Alcoa (AA) turned in one of the Dow's worst performances, as traders expressed concerns about the outlook for aluminum demand. Shares of Alcoa closed down 8.8 percent, pulling back further off the four-month closing high it set last week.

Banking giants Bank of America (BAC) and Citigroup (C) also posted substantial losses, ending the session down 10.2 percent and 6.8 percent, respectively.

With traders worried about the economic outlook, General Electric (GE), Caterpillar (CAT), and 3M (MMM) were among the other Dow components that posted notable losses.

On the other hand, shares of General Motors (GM) closed up 5.2 percent, bouncing off the more than 70-year low set in the previous session. Merck (MRK) and Pfizer (PFE) also posted strong gains, reflecting the strength in the drug sector.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Wednesday. While Hong Kong's Hang Seng Index fell 0.6 percent, Japan's benchmark Nikkei 225 Index closed up 0.5 percent.

Meanwhile, the major European markets all saw considerable weakness on the day, with the U.K.'s FTSE 100 Index closing down 2.1 percent, while the French CAC 40 Index and the German DAX Index fell 2.4 percent and 2.6 percent, respectively.

In the bond market, treasures saw significant strength on the weak retail sales data as well as the sell-off seen on Wall Street. Subsequently, the yield on the benchmark ten-year note closed down 7 basis points at 3.105 percent.

Looking Ahead

Following today's weak retail sales report, economic data is likely to remain in focus on Thursday. Traders are likely to keep a close eye on the Labor Department's weekly jobless claims report along with its report on wholesale price inflation in the month of April.

Trading is also likely to impacted by the release of quarterly results from Wal-Mart (WMT), with the retail giant expected to report first quarter earnings of $0.77 per share, up slightly from $0.76 per share in the same quarter last year.

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