Wall Street had its worst day in more than four months Monday as the dollar weakened and concerns about the strength of the retail industry arose following a rare sales decline at Wal-Mart Stores Inc. The Dow Jones industrials fell 158 points.
Investors were uneasy after the dollar fell for the fifth straight day and after Wal-Mart reported a 0.1 percent drop in same-store sales, those from stores open at least a year. While overall retail sales appeared strong last weekend, Wal-Mart's first deficit in a decade raised concerns about the strength of consumer spending during the holiday season.
"There is now significant concern that the holiday retail season is going to underperform," said Gregory Miller, chief economist at SunTrust Banks. "Traffic doesn't necessarily translate into profits," he said, referring to reports of crowded stores over the weekend.
As the dollar's slide continued, it hit a 20-month low against the euro, though it did for a time move higher against the Japanese yen. The dollar's fall raised concerns that foreign investors were sensing weakness in the U.S. economy and would pull some of their investments from U.S. markets.
Beyond the weak dollar and news from Wal-Mart, some retrenchment was to be expected as investors seek to preserve their profits after stocks have soared the past two months.
The Dow fell 158.46, or 1.29 percent, to 12,121.71, as 27 of the index's 30 stocks fell. It was the Dow's biggest slide since a string of triple-digit declines in mid July that followed disappointing profit reports and a spike in oil prices amid tensions with Iran and North Korea.
Broader stock indicators also dropped sharply Monday. The Standard & Poor's 500 index fell 19.05, or 1.36 percent, to 1,381.90, and the Nasdaq composite index slid 54.34, or 2.21 percent, to 2,405.92.
Investors examining retail reports tried to determine whether an increase in traffic at stores would translate to higher profits for retailers. Consumer spending accounts for two-thirds of all economic activity, and Wall Street is concerned that weak spending would prevent the slowing economy from achieving a soft landing.
Regardless of the pace of retail sales, however, stocks have posted strong gains in October and November, making Monday's retreat unsurprising.
"A little bit of profit-taking is healthy at this point," said Jim Russell, director of core equity strategy for Fifth-Third Asset Management. "The market went up a little bit too far, too fast. Folks have made big money just in the past two or three months and are perhaps looking to lock in gains before the end of the year."
Holiday news is good for many retailers
The 2006 holiday shopping season is off to a strong start, mostly, with larger than expected crowds. Some early winners and losers:
Winner: Electronics chains such as Best Buy and department stores, including JCPenney, Kohl's, Target and Sears.
Winner: Toys "R" Us, which reports strong sales across the board.
Winner: Online retailers, whose sales rose 42 percent to $434-million the day after Thanksgiving, compared with a year ago.
Loser: Wal-Mart, which sunk into a surprising slump, saying it expects to report a same-store sales decline of 0.1 percent in November, slightly below its projections for flat sales for the month.