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."
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)
@heriethpaul and @gracebol have a moment on the @victoriassecret fashion show 2017. See every look from the runway on WWD.com. Link in bio. (📷: @giovanni_giannoni_photo) #wwdfashion #victoriassecret #VSFashionShow
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia