Stocks sink after disappointing retail sales; Dow drops 184 points
NEW YORK -- After its dizzying climb, Wall Street is looking at the economy more skeptically.
Stocks retreated more than 2% and bond prices rose after two reports showed that the economy is not bouncing back as quickly as investors hoped. The Commerce Department said retail sales fell 0.4% in April, while RealtyTrac reported a troubling rise in home foreclosures.
Economists watch these numbers closely because consumer spending accounts for about two-thirds of U.S. economic activity. Without improved spending, the economy is more likely to remain mired in a recession.
Investors are mindful that the Dow Jones industrial average spiked 31% from its March 9 lows — the biggest jump in such a short span since the 1930s. Even after Wednesday's decline the index is still up 26.5%, but investors are now wondering if the market will see a sharper pullback.
Analysts say a drop of 10% from the market's recent peak would be hardly surprising, especially since recent economic readings have failed to beat expectations.
"Overall, it's just a market that's due for a pause, due for a pullback, due for consolidation," said Quincy Krosby, chief investment strategist for The Hartford. "You don't want markets to skyrocket. The higher you go, the deeper you fall."
Few analysts, however, expect the stock market to sink lower than it did in March.
"What we've done over the past month-and-a-half is remove this idea of Armageddon," said Charlie Smith, chief investment officer at Fort Pitt Capital.
The Dow Jones industrial average fell 184.22, or 2.2%, to 8,284.89.
Broader stock indicators sank even more sharply. The Standard & Poor's 500 index fell 24.43, or 2.7%, to 883.92, while the Nasdaq composite index declined 51.73, or 3%, to 1,664.19.
During the market's two-month advance, investors grew accustomed to data indicating that the economy, while not growing, was bottoming out. This week, unexpectedly worse data has thrown a wrench in the rally.
On Wednesday, economists had expected April retail sales to be flat, but instead they fell, and March's sales decline was revised to an even larger drop.
