The Federal Reserve's move to cut the primary interest rate on Tuesday by a quarter percent to 4.25 sent stocks plummeting in afternoon trading.
Retail shares were particularly hard hit as Wall Street was hoping for a deeper reduction in interest rates to spur the economy as it slogs through the subprime mortgage collapse.
The Dow Jones Industrial Average dropped 2.1 percent to close at 13,432.60, while the broader S&P 500 Index fell 2.5 percent to 1,477.59. The S&P Retail Index shed 4.2 percent to 425.63.
The rate cut was the third since September, and Fed officials said there could be additional cuts in the near future if the mortgage and housing crisis escalates.
Stocks were mixed for most of the day, but plunged following the rate cut. In the retail sector during the afternoon session, stocks were down between 2 and 5 percent. Trading volume was heavy.
At the bell, Wal-Mart Stores closed down 0.75 percent to $49.06, while rival discounter Target dropped 4.5 percent to $53.12.
Shares of department stores were also hit hard. Macy's slumped with a 4.2 percent decline to $29.13. Kohl's fell 5.9 percent to $49.46, while J.C. Penney saw shares decrease 4.5 percent to $45.73.
Teen apparel retailers Aéropostale, Abercrombie & Fitch and American Eagle Outfitters were down 6.3, 4.6 and 3.7 percent, respectively, to $24.72, $80.72 and $22.07, while Gap Inc.'s shares declined 5.1 percent to $20.43.
Separately, Mark Montagna, retail analyst at C.L. King & Assoc., maintained his "strong buy" rating on Dress Barn after David Jaffe, chief executive officer, offered bullish comments on key business segments in a report published in WWD.
Based on Jaffe's comments, Montagna believes the Maurices division remains strong, while Dress Barn continues to stumble. Shares of Dress Barn ended the day down 2.6 percent to $13.31.
In a separate report, Kimberly Greenberger, specialty retail analyst at Citigroup, highlighted Abercrombie & Fitch, The Children's Place and TJX Cos. as her three favorite stocks for the end-of-the-year period and for the beginning of next year.
Greenberger cited Abercrombie's accelerating international growth, strong direct sales, prudent inventory management and share repositioning to drive earnings-per-share growth as key factors to its continued success.
Off-price retailer TJX Cos. is in an ideal inventory position and should perform well in an environment where the consumer is looking to save, the analyst said.
"In our holiday outlook note, we conveyed our bullish view of the softline sector stocks, calling for a rally in our coverage universe over the next six to eight weeks," she said in the note. "However, given the rally across our coverage universe, we are more selectively putting money to work in the sector."
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews