Stocks fall on weak jobs report, Wal-Mart sales

Thursday August 7, 2:46 pm ET By Tim Paradis, AP Business Writer
Wall Street falls on jump in unemployment claims; retailers report lackluster same-store sales
NEW YORK (AP) -- Wall Street retreated Thursday after weekly unemployment claims jumped to a six-year high and Wal-Mart Stores Inc. and other retailers reported disappointing sales, touching off renewed fears that a pullback in consumer spending will damage the economy. The Dow Jones industrials fell about 120 points.
The Labor Department said the number of newly laid off people seeking jobless benefits increased by a seasonally adjusted 7,000 to 455,000 last week, the highest level since late March 2002. Wall Street had expected new claims to rise to around 430,000.
Wal-Mart, the world's largest retailer, said same-store sales, or stores open at least one year, rose 3 percent in July as consumers began using up their government stimulus checks. Analysts who follow the important measure of a retailer's health had expected a 3.4 percent rise, on average.
Financial stocks also lost ground after insurer American International Group Inc. reported that it lost more than $5 billion in the second quarter. The stock was by far the steepest decliner among the 30 that make up the Dow industrials.
Bill Stone, chief investment strategist for PNC Wealth Management, said the stream of economic news has been somewhat negative lately, often short-circuiting the market's attempts to build on rallies. Thursday's reports on employment and financials only added to investors list of worries, he said.
"The concerns about a weakening economy always run to worries about the financials and then you add some negative news to them on their own and you've got what we've got today," he said.
In midfternoon trading, the Dow fell 117.08, or 1.00 percent, to 11,538.99. The pullback comes after a two-day rally in the Dow of more than 370 points.
Broader indicators also slid. The Standard & Poor's 500 index fell 10.87, or 0.84 percent, to 1,278.32, and the Nasdaq composite index fell 3.04, or 0.13 percent, to 2,375.33.
Oil prices that fell sharply earlier in the week rebounded Thursday, likely adding to Wall Street's downbeat mood. Light, sweet crude rose $1.11 to $119.69 on the New York Mercantile Exchange.
Bonds jumped as investors sought the protection of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, fell to 3.93 percent from 4.05 percent late Wednesday. The dollar mostly rose against other major currencies, while gold prices fell.
The employment data Thursday indicated that the labor market continues to weaken. The number of people continuing to collect unemployment benefits rose for the week ending July 26 to the highest level since early December 2003. In recent weeks, General Motors Corp., Weyerhaeuser Co. and Starbucks Corp. have all announced job cuts, sending more people to the unemployment lines.
Stocks briefly came off their lows after the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from a downwardly revised figure of 84.5 for May. Despite the June increase, the index sits 12 percent below year-ago levels. Economists surveyed by Thomson/IFR had predicted the index would fall to 84.3.
Jerry Webman, chief economist at Oppenheimer Funds Inc., said swift pullback in stocks after the day's economic readings illustrates the fragility of investor sentiment. He said the market's volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood.
"We react very strongly to bits of news," he said. "The whipsaw danger is pretty high here."
In corporate news, American International Group fell $4.71, or 16 percent, to $24.38 after the world's largest insurer reported its loss and said weakness in the credit markets has erased several billions of dollars in value from its credit default swaps portfolio and other investments.
Citigroup Inc. fell 72 cents, or 3.7 percent, to $18.98 after federal and state regulators announced settlements Thursday in which the company will repurchase more than $7 billion in auction-rate securities and pay $100 million in fines. The company neither acknowledged nor denied wrongdoing under the settlements. New York Attorney General Andrew Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.
The latest worries about financials offered an unwelcome reminder of the trouble companies are having with bad debt on their balance sheets. Tightness in the credit markets makes it hard for companies to unload and even value mortgages and other paper. And the reports of rising unemployment Thursday only added to fears that defaults on mortgages and other borrowings aren't likely to end soon as consumers continue to struggle.
The results from Wal-Mart and other retailers only fanned concerns about consumer spending, which accounts for more than two-thirds of U.S. economic activity.
Wal-Mart, also a Dow stock, fell $3.33, or 5.5 percent, to $57.43 after reporting its July sales.
Other retailers' reports disappointed Wall Street. Target Corp. fell $1.50, or 3.1 percent, to $46.51, while Macy's Inc. fell 63 cents, or 3.2 percent, to $19.06.
Among technology names helping check the Nasdaq's losses, Intel Corp. rose $1.01, or 4.4 percent, to $23.81, while Microsoft Corp. advanced 50 cents $27.52.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume totaled 776.9 million shares.
The Russell 2000 index of smaller companies fell 5.28, or 0.73 percent, to 720.62.
Overseas, Japan's Nikkei stock average fell 0.98 percent. Britain's FTSE 100 fell 0.16 percent, Germany's DAX index fell 0.27 percent, and France's CAC-40 added 0.20 percent.
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