After ending the previous session mixed, stocks saw substantial weakness during trading on Tuesday, as traders reacted to disappointing retail sales data and largely shrugged off some optimistic comments from President Obama and Federal Reserve Chairman Bernanke.
Stocks showed a notable decline in early trading after a report from the Commerce Department showed that retail sales fell 1.1 percent in March following an upwardly revised 0.3 percent increase in February. The decrease came as a surprise to economists, who had expected sales to increase by 0.3 percent.
Despite the unexpected drop in retail sales, Joel Naroff, president of Naroff Economic Advisors and chief economist of TD Bank, told RTT News that the consumer has hit bottom.
While Naroff stressed that it is unrealistic to see consistent gains in consumer spending month after month, he predicted that we will see more good months than bad months as we move through the spring.
Naroff forecast reasonably good April retail sales data, although he said he doesn't expect any month to have a very strong increase.
Separately, the Labor Department said that its producer price index fell 1.2 percent in March compared to economist estimates of a flat reading. Core producer prices, which exclude food and energy prices, were unchanged compared to the previous month.
In corporate news, Goldman Sachs (GS) reported a first quarter profit that rose year-over-year and came in well above analyst estimates. The company also said that it has started a $5 billion public offering of its common stock, which may be used to repay TARP funds.
Additionally, Johnson & Johnson (JNJ) also released first quarter results that exceeded analyst estimates. The company reported earnings of $1.26 per share compared to the $1.22 per share that was anticipated.
In other news, Fed Chairman Ben Bernanke said that there have been tentative signs of a slowing in the steep economic decline, offering hope that the worst of the recession may be drawing to a close.
Speaking at Atlanta's Morehouse College, Bernanke cited statistics in home sales, homebuilding, and consumer spending, with sales of new motor vehicles showing some signs of leveling out.
Bernanke's remarks reflected those of President Barack Obama, who also spoke Tuesday regarding the hopeful signs in the economy.
Obama, offered hopeful remarks in a speech at Georgetown University and praised the recent actions by his administration, including the $787 billion recovery act.
Taken together, these actions are starting to generate signs of economic progress, the president said.
The major averages all closed firmly in negative territory, although off their worst levels of the day. The Dow closed down 137.63 points or 1.7 percent at 7,920.18, the Nasdaq closed down 27.59 points or 1.7 percent at 1,625.72 and the S&P 500 closed down 17.23 points or 2.0 percent at 841.50.
While most of the major sector indices ended the day in negative territory, significant weakness was visible in the real estate sector, as reflected by the 8.7 percent loss posted by the Morgan Stanley REIT Index. With the loss, the index pulled back well off the two-month closing high it set on Monday.
Banking stocks also moved sharply lower over the course of the trading day, dragging the Kbw Bank Index down 8.1 percent. The loss by the index came after it posted standout gains in the two previous sessions, ending Monday's trading at a three-month closing high.
Brokerage housing, and airline stocks also helped to lead the broader markets lower. The Amex Securities Broker/Dealer Index closed down 5 percent, while the Philadelphia Housing Index and the Amex Airline Index fell 3.9 percent and 3.8 percent, respectively.
While significant weakness was also visible in the tobacco, steel, and telecom sectors, healthcare provider and oil service stocks bucked the downtrend. The Morgan Stanley Healthcare Provider Index closed up 3 percent, while the Philadelphia Oil Service Index rose 1 percent.
A vast majority of the Dow components ended the session in negative territory, contributing to the steep loss posted by the blue chip index. Financial stocks within the Dow posted some of the widest losses.
American Express (AXP) suffered one of the harshest declines, with the credit card giant finishing the session with a 9.9 percent loss. The decline pushed the stock well off the over four-month closing high it set on Monday.
Within the financial sector, JP Morgan (JPM) and Bank of America (BAC) also posted significant losses. Shares of JP Morgan ended the session down 8.9 percent, while shares Bank of America fell 8.4 percent.
General Electric (GE), Alcoa (AA), and AT&T (T) were among the other Dow components that posted notable losses on the session.
At the other end of the spectrum, Citigroup (C) bucked the downtrend in the financial sector, posting a gain of 5.5 percent by the close of the session. Additionally, General Motors (GM) posted a notable gain, closing up 4.1 percent.
In overseas trading, stock markets across the Asia-Pacific region closed mostly higher on Tuesday, with financial stocks leading the way higher following the release of the better than expected results from Goldman Sachs.
Additionally, after some uncertainty, the major European markets also ended the session in positive territory. The U.K.'s FTSE 100 closed up 0.1 percent, while the German DAX Index and the French CAC 40 Index posted gains of 1.5 percent and 0.9 percent, respectively.
In the bond market, treasuries finished the session just off their highs of the day, driving the yield on the benchmark 10-year note down 5.9 basis points to 2.786 percent.
Earnings will remain in focus on Wednesday, with Intel (INTC) and CSX Corp. (CSX) among the companies due to release their quarterly results after the close of trading today.
On the economic front, consumer price data and the New York Fed index are both due to be released at 8:30 a.m. ET on Wednesday. The Fed's industrial production report for March will also be released at 9:15 a.m. ET.
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