Retailers hit Wall Street hard

Curtailment of revenue and mounting job losses take faith on market away from investors

The second week of November, 2008 witnessed extreme volatility in Wall Street and huge swings between indices became a very common thing among investors. Though there were a couple of late rallies during the week, market, nevertheless, witnessed substantial losses for the week that ended on Friday, 14 November, 2008. Dour economic reports pointing their fingers towards a weak economic condition was the main reason for buyers to stay away. Retailers continued to curtail their revenue estimates as consumers tightened purse strings amid mounting job losses.

Uncertainty about the timing of an economic recovery and cautious guidance coming from most companies also unnerved the stock market once again. The three major indices ended the week with good losses. Though the market tried to remain a bit steady in the first half of the week, the last two sessions took market to great losses.

The Dow Jones Industrial Average lost 446.5 (5%) for the week to end at 8,479.31. Tech - heavy Nasdaq lost 130.55 points (7.9%) to end at 1,516.85. S&P 500 lost 57.7 points (6.2%) to end at 873.29.

Best Buy, the leading consumer electronics retailer, and Intel, the world's largest semiconductor company, were key contributors to the concerns as both companies reduced their forecasts. Best Buy slashed its earnings guidance for the fiscal year ending in February. As for Intel, it lowered its fourth quarter revenue outlook to $9 billion, plus or minus $300 million, from a prior range of $10.1 billion. Companies like Google, AIG and Wells Fargo all had their earnings estimates cut.

Lowered earnings guidance also came from several other retailers, including Wal-Mart, Kohl's, JC Penney and Nordstrom.

The Labor Department reported during the week that weekly jobless claims moved to a seven-year high. Claims for the week ended 8 November, 2008 totaled 516,000, up 32,000 week-over-week to top the consensus estimate of 480,000. The four-week moving average is up to 491,000 from 477,750.

During the week, government officials outlined a new mortgage modification plan for loans held by GSEs Fannie Mae and Freddie Mac. The program targets the highest risk borrower who has missed three payments or more, owns and occupies the property as a primary residence and has not filed for bankruptcy. The borrower's loan payment will then be modified to be affordable, which was defined as no more than 38% of total monthly gross income.

On Friday, 14 November, stocks at Wall Street ended with substantial losses. The losses came due to a weak batch of economic data mainly on the retail front. The weak economic environment in US also led to a number of retail companies to issue a downward guidance for sales in the coming months. The sell-off had started during the start of the day but just accelerated in the final hours of trading.

The Dow Jones Industrial Average ended lower by 337 points at 8,497. The Nasdaq Composite Index, ended lower by 80 points at 1,516. S&P 500 ended lower by 38 points at 873.

October total retail sales declined 2.8% and retail sales, excluding autos, declined 2.2%. Both were worse than expected and set a very poor foundation for the PCE component of fourth quarter GDP.

Also, retailers continued to curtail their revenue estimates as consumers tightened purse strings amid mounting job losses. It was reported that Citigroup and Sun Microsystems are laying off 5,000 and 10,000 people respectively.

Investors were reminded about the global economy's tenuous standing when leading handset company Nokia stated it expects fourth quarter industry volume to decline. The firm sees softer consumer spending amid weak economic conditions, while trade partners are challenged by credit conditions.

In other economic data on Friday, October import prices were up 6.7% year-over-year, missing the consensus of an 8.2% year-over-year increase. September business inventories were down 0.2%, which is below the consensus forecast of a 0.1% decline. The prior reading was revised lower to a 0.2% increase.

For the year, Dow, Nasdaq and S&P 500 are down by 35.9%, 42.8% and 40.5% respectively.