Investors Sell on Fears of a Weak Shopping Season

A worse-than-expected consumer confidence report jarred Wall Street on Tuesday, prompting some investors to cash in profits from stocks’ recent rally on fears of a tepid holiday shopping season.

Analysts said the market was overdue for a pullback after sharp gains last week. The consumer sentiment news gave investors another reason to sell.

“People want to see a strong confidence number, especially with the holiday season coming up,” said Stephen Carl, head of equity trading at the Williams Capital Group. “If you don’t see that, it doesn’t bode well.”

The Dow Jones industrial average declined 172.98 points, or 2%, to close at 8,676.42. It was the Dow’s biggest drop since it tumbled 178 points Nov. 11.

The broader market also finished lower. The Nasdaq composite index fell 37.47 points, or 2.5%, to 1,444.43. The Standard & Poor’s 500 index dropped 19.57 points, or 2.1%, to 913.31.

Losers outnumbered winners by 3 to 2 on the New York Stock Exchange and Nasdaq in trading that was active but below the levels of recent sessions.

The Conference Board’s reading of consumer confidence increased in November for the first time in five months. But analysts said investors were disappointed that the number came in below expectations.

“It’s widely known at this point that the Christmas shopping season is six days shorter” because of the lateness of Thanksgiving, said Chris Wolfe, equity market strategist for J.P. Morgan Private Bank. “Investors are looking for signs of strong retail sales in a shortened period so that retailers can make their earnings numbers.”

Investors shrugged off the day’s good news -- reports that the U.S. economy grew faster than expected in the third quarter and that new-home sales, although down in October compared with September, still enjoyed their third best monthly level ever.

The road to a stock market recovery “is bumpy and today is a bump,” said Hugh Johnson, chairman at First Albany Asset Management. “I don’t look at it as anything more than that. Today, the skeptics are getting their way.”

The Dow still is up 19% from its five-year low reached Oct. 9. The Nasdaq index is up 29.6% in the same period.

Meanwhile, the economic news sent bond yields lower Tuesday. The yield on the benchmark 10-year Treasury note fell to 4.07% from 4.17% Monday.

In other highlights:

* Despite the consumer confidence report, many retail stocks were only modestly lower. Wal-Mart fell 58 cents to $53.24 and Nordstrom slipped 32 cents to $19.49.

* Semtech fell $3.56 to $14.55 after the semiconductor company warned that it expected fourth-quarter earnings to fall below analysts’ expectations. The SOX index of chip stocks, which had risen 75% since early October, slid 4.4%.

* Shares of software maker Roxio surged 99 cents, or 23%, to $5.28 after Dell Computer agreed to include the company’s new video-editing and DVD-burning software on its PCs. Dell was off 34 cents at $28.33.

* Shares of drug maker Eli Lilly fell $4.06 to $64 after an analyst downgraded the stock. Investors shrugged off news that Lilly received approval for its new osteoporosis medication.

Among other drug firms, Biogen slid $3.32 to $42.91 after Merrill Lynch lowered the stock’s rating to “sell” from “neutral.”

* HMO stocks rebounded after tumbling Monday on an analyst report that employers are resisting premium increases. Gainers included UnitedHealth, which rose $2.65 to $79.10 after the health insurer said it expects 2003 earnings to be on the high end of expectations.

* Overseas markets were broadly lower. Key share indexes fell 1.4% in Japan, 2.4% in France, 1.2% in Britain and 3.3% in Germany.

Market Roundup, C6-7