The financial markets and retail stocks nosedived Tuesday after reports of sagging consumer confidence, falling home prices and the release of minutes from the most recent Fed meeting.
The notes suggested that the Fed would not soon take decisive action to cut interest rates.
Major retail stocks that declined included Gap Inc. with a 1.3 percent drop to $18.07 and Macy's Inc., which fell 4.9 percent to $29.85. Shares of Wal-Mart Stores Inc. lost 1 percent to $43.40.
Driving down retail shares was a report from the Conference Board that showed the Consumer Confidence Index declining to 105 this month from 111.9 in July. Last month's reading was a six-year high.
The Dow Jones Industrial Average fell 2.1 percent to 13,041.85 while the S&P 500 lost 2.4 percent to 1,432.36. The New York Stock Exchange declined 2.5 percent to 9,289.92, and the Nasdaq shed 2.4 percent to 2,500.64.
The S&P Retail Index closed down 2.3 percent to 466.97.
"A softening in business conditions and labor market conditions has curbed consumers' confidence this month," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement. "In addition, the volatility in financial markets and continued subprime housing woes may have played a role in dampening consumers' spirits."
The two components that comprise the Consumer Confidence Index dropped in August. The Present Situation Index fell to 130.3 from 138.3 last month, while the Expectations Index declined to 88.2 from 94.4.
Consumers claiming conditions are "good" decreased to 26.4 percent from 28.3 percent in July, while those saying conditions are "bad" increased to 16.3 percent from 14.5 percent. Consumers who said jobs are "hard to get" rose to 19.7 percent from 18.7 percent in July, while those who said jobs are "plentiful" dipped to 27.5 percent from 30 percent.
And consumers remain cautious in their short-term outlook. Those expecting business conditions to worsen in the next six months jumped to 10.6 percent from 8.2 percent in July, while those anticipating business conditions to improve remained unchanged at 15 percent.
"But, despite less favorable conditions and in spite of all the recent turmoil, consumers still remain confident. And, current index levels suggest further economic growth in the months ahead," Franco added.Meanwhile, Standard & Poor's S&P/Case-Shiller Home Price Index reported its largest year-over-year decline in national home prices since 1987.
For the second quarter of 2007, the U.S. National Home Price Index fell 0.9 percent from 2007's first quarter and 3.2 percent year-over-year. "The pullback in the U.S. residential real estate market is showing no signs of slowing down," said Robert Shiller, chief economist at MacroMarkets LLC.
Separately, shares of Zale Corp. fell to a 52-week low after Goldman Sachs downgraded the jewelry retailer's stock to "sell" from "neutral" on growing macro headwinds, management upheaval and poor strategic positioning.
Shares of Zale closed down 7.5 percent to 20.36. Earlier in the day, the stock set a new 52-week low of 19.89. Zale is scheduled to report fourth-quarter earnings Thursday.
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