U.S. Stocks Drop on Retail Forecasts; Wal-Mart, Macy’s Slump...

Source: Bloomberg.com

U.S. stocks slid for a second day after retailers from Wal-Mart Stores Inc. to Macy’s Inc. said profit will trail forecasts as the recession limited holiday spending and sent jobless claims to a 26-year high.

Wal-Mart Stores Inc., the world’s biggest retailer, tumbled 8.6 percent, while Macy’s, the second-largest U.S. department- store chain, lost as much as 4.1 percent. Clothing retailers Limited Brands Inc. and Gap Inc. retreated after reducing their profit outlooks. Sun Microsystems Inc. fell 7.9 percent as Goldman Sachs Group Inc. recommended selling the shares on “deteriorating fundamentals.”

The Standard & Poor’s 500 Index fell 0.6 percent to 900.94 at 9:40 a.m. in New York and is down 0.3 percent in 2009. The Dow Jones Industrial Average declined 0.9 percent to 8,694.12. The VIX, which measures the cost of using options as insurance against declines in the S&P 500, climbed for a second day after retreating for five straight sessions.

“Things look really, really bleak right now,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, New York, which manages $1.4 billion. “We knew the fourth quarter was absolutely horrid and now we’re getting confirmation of that. Between now and mid-spring, I think we’re going to see the market in flux and not making much progress.”

Stocks fell on three of four days this week as the recession forced the biggest U.S. companies to acknowledge that forecasts made last year were too optimistic. The five-quarter slump in profits at S&P 500 companies is projected to last two full years before a rebound in the second half of 2009, according to analyst estimates compiled by Bloomberg.

Jobless Claims

The total number of people receiving unemployment benefits rose to 4.6 million, the most since 1982, the Labor Department said, even as initial jobless claims unexpectedly fell by 24,000 to 467,000 in the week that ended Jan. 3. A report tomorrow will show the U.S. lost jobs for a 12th straight month in December, economists forecast.

The jobless-claims report comes hours before President-elect Barack Obama delivers a speech on the economic outlook in a bid to build support for his stimulus plan. In excerpts of the speech he’s scheduled to give today at 11 a.m. New York time in Fairfax, Virginia, Obama says that while the cost of his economic recovery plan will add to a deficit already projected to exceed $1 trillion, he “won’t just throw money at our problems.”

Obama warned that without immediate steps by the government to revive the economy, family incomes will drop, the unemployment rate could reach “double digits” and the U.S. risks losing a “generation of potential and promise.”

The S&P 500 has slumped 39 percent since the start of 2008 amid more than $1 trillion in credit losses and writedowns at financial firms worldwide and the first simultaneous recessions in the U.S., Europe and Japan since World War II.