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."
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion
Eighty degree temperatures and outdoor installations at the annual Art Basel Miami Beach called for bright, elevated beachwear. See more street style pictures on WWD.com. #theyarewearing #ABMB (📷: @lifeinreverie)
Following September’s emotional tribute to her brother Gianni, Donatella Versace wanted to bring the spring show’s deep sense of intimacy to her @versace_official pre-fall collection. Donatella found inspiration in Versace Palazzo in Milan and from Gianni’s opulent apartment. Archival patterns and new motifs were splashed on silk shirtdresses and fitted jersey frocks. See the rest of the photos on WWD.com. #wwdfashion
Demna Gvasalia continues to shake up the Paris fashion calendar — and experiment with new runway timetables for his @vetements_official brand. WWD has learned that Vetements plans to stage its next coed show for the fall 2018 season on January 19 during Men’s Fashion Week in the French capital. Details about the timing and venue have not been confirmed — stay tuned on WWD.com to catch the latest. #wwdnews (📷: @giovanni_giannoni_photo)
@zacposen's go-to holiday gift? Cookies! "I'll usually bake cookies and send them as a gift," said the designer, who recently released his cookbook "Cooking With Zac: Recipes from Rustic to Refined." Get the recipe for his Brown Butter-Chocolate Chip Cookies via link in bio 🍪🍪🍪 #wwdeye #cookingwithzac
For @monsemaison’s pre-fall 2018 collection, Fernando Garcia and Laura Kim honed in on the brand’s many signatures — men’s wear, which was tweaked and feminized through deconstruction, proportion play and lots of bare shoulders. See the rest of the photos on WWD.com #wwdfashion (📷: George Chinese)
On Friday night, @yohjiyamamotoofficial received the Design for Asia Lifetime Achievement Award in Hong Kong. The 75-year-old designer has been celebrated for many years and is best known for his dark and avant-garde tailoring. “In my long career, in design, architecture, [I’ve been to] so many parties, this is the very first time that I have such a warm feeling, I really appreciate this,” Yamamoto said. #wwdfashion (📷: @dominiquemaitre)