By  on April 20, 2009

Equity markets fell Monday, dragging retail stocks down 3.8 percent as investors fretted over signs of continuing weakness in the banking sector.

The S&P Retail Index slumped 12.65 points to 319.79 after rising 1.1 percent last week. The vast majority of retailers lost ground for the day, with Saks Inc. a notable exception after an upgrade from J.P. Morgan.

But the action in the markets was centered around the banking world.

Despite $4.25 billion in first-quarter profits from Bank of America Corp., investors worried that accounting adjustments and special items were propping up bank earnings and drove the Dow Jones Industrial Average down 3.6 percent, or 289.60 points, to 7,841.73.

The economic pressures being felt by consumers were clear in Bank of America’s first-quarter report. Credit-card losses totaled 8.62 percent of receivables, up from 5.19 percent a year earlier. The bank’s provision for credit losses rose to $13.38 billion from $6.01 billion a year ago.

Saks is by no means escaping the economic realities bearing down on shoppers of all stripes, but J.P. Morgan analyst Charles Grom said investors have been too bearish on the company.

Shares of Saks rose 2.8 percent to $3.64 Monday. Grom upgraded the stock to “overweight” from “neutral” and set a target price of $6 a share.

“This call is certainly not for the faint of heart,” said Grom, noting sales are stabilizing but are still not good. “We believe that Saks will circumvent a bankruptcy filing and will likely execute a sale-leaseback [of one of its stores] to add more cushion to its already adequate liquidity position.”

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