A nervous market drives Dow down 338

By Charley Blaine and Elizabeth Strott

The stock market was briefly ahead Friday after falling badly in the wake of a dismal report on October retail sales.

Last-minute selling, however, totally cut the knees out of the rebound.

At the close, the Dow Jones industrials were down 338 points, or 3.8%, to 8,497. The Standard & Poor's 500 Index was down 38 points, or 4.2%, to 873, and the Nasdaq Composite Index was off 80 points, 5% to 1,517.

The Dow was down as much as 363 points at noon ET. Before the last round of selling began shortly after 3 p.m., the blue-chip index had been up nearly 88 points. Sounds nice -- except that the Dow dropped nearly 400 points in the next hour.

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For the week, the Dow was down 5%, its second weekly loss in a row. The S&P 500 was off 6.2%, and the Nasdaq fell 7.9%.

For the year, the Dow is off 36%, with the S&P 500 down 40.5% and the Nasdaq down 42.8%.

While the deteriorating economy was the biggest problem for the market, two other issues seemed to weigh on markets.

One was skepticism Friday that the Group of 20 conference this weekend in Washington, D.C., would produce major results.

The other was whether Congress could get economic stimulus legislation passed in the lame-duck session opening next week. The biggest concern seemed to be whether a rescue package for the domestically headquartered auto industry could be enacted before a major crisis erupted.

The issue is already wrapped up in post-election politics. President Bush called on Congress to give U.S. auto makers quick access to a $25 billion federal loan program by dropping a requirement that the money be spent on converting to fuel-efficient vehicles. Democrats want to tap into the $700 financial rescue pool.

Futures trading suggests that U.S. stocks will open modestly higher on Monday. But market volatility will probably continue next week. Reports on wholesale and consumer inflation are due Tuesday and Wednesday.

Plus, investors will have to digest a new round of gloomy earnings reports from retailers Target (TGT, news, msgs) and Lowe's (LOW, news, msgs) on Monday and Home Depot (HD, news, msgs) and Pacific Sunwear (PSUN, news, msgs) on Tuesday.

Retailers including Nordstrom (JWN, news, msgs), Kohl's (KSS, news, msgs), Best Buy (BBY, news, msgs) and Abercrombie & Fitch (ANF, news, msgs) issued dour outlooks this week, and the government's report on retail sales was taken as confirmation that consumers are simply not spending like they used to.

It suggests, as Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York put it, "Not only is no economic recovery on the horizon, but the economy is falling off a cliff at its fastest pace in at least six decades."

At the same time, a big question for many traders is whether the market's huge rally on Thursday is the signal that a bottom for the stock market is forming.

The Dow was down 266 points on Thursday morning, with the S&P 500 and Nasdaq Composite breaking well below their lows of October, when a powerful buying surge hit the market. The finish pulled all major indexes well above their closing lows on Oct. 27.

Bottoms take time to form, usually months. The market hit a low in October 2002, for example, and tested it many times before finally breaking sharply higher six months later.

Stocks briefly pulled off opening lows after the University of Michigan consumer sentiment index came in higher than expected. The survey showed a reading of 57.9 in November, slightly higher than the reading of 57.6 in late October. Economists expected a reading of 56.5.

Crude oil closed at $57.04 a barrel, down $1.20 from Thursday and 6.6% on the week. Crude had been as low as $55.69 early in the day. Worries about demand have steadily pushed oil down from its record closing high of $145.08 on July 12.

Meanwhile, gasoline prices continue to fall. The average price of a gallon of unleaded regular gas was down 3 cents to $2.15, according to the AAA Daily Fuel Gauge Report.

Last month, gas averaged $3.13 a gallon.

November is turning into a lousy month

Twenty-eight of the 30 Dow stocks were lower. The two winners: General Motors (GM, news, msgs), up 2% to $3.01, and Citigroup (C, news, msgs), up 0.7%, to $9.52.

At the same time, 462 S&P 500 stocks were lower, along with 92 stocks in the Nasdaq-100 Index ($NDX.X). The index was down 61 points, or 4.9%, to 1,180.

Hartford Financial Services (HIG, news, msgs) was the S&P 500 winner, up 21% to $12.65, after it said it wanted to charter itself as a savings bank.

Liz Claiborne (LIZ, news, msgs) was the S&P 500 laggard, down 26% to $3.69.

PC maker Dell (DELL, news, msgs) was the top Nasdaq-100 stock (and second among S&P 500 stocks), up 6% to $10.89.

Activision Blizzard (ATVI, news, msgs) was the Nasdaq-100 laggard, down 15.6% to $10.61. Microsoft (MSFT, news, msgs), down 5.6% to $20.06, and Apple (AAPL, news, msgs), down 6.4% to $90.24, subtracted more than 13 points from the Nasdaq-100. (Microsoft is the publisher of MSN Money.)

The Dow is off 8.9% this month. If its loss holds, it would be the seventh-worst November since 1928 and the worst since 1973. November is normally a good month for stocks; November has produced positive returns 50 out of 80 times since 1928.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	8,497.31	8,943.81	-4.99%	-35.94%
S&P 500	873.29	930.99	-6.20%	-40.53%
Nasdaq Composite	1,516.85	1,647.40	-7.92%	-42.81%
Russell 2000	456.52	505.79	-9.74%	-40.40%
Crude oil per barrel	$57.04	$67.81	-15.88%	-40.57%
10-yr. Treasury yield	3.75%	3.78%	-0.03%	-7.06%
Gold per troy ounce	$742.50	$718.20	3.38%	-11.40%

Autos, gasoline sales lead retail sales lower

The Commerce Department's report showed that retail sales for October fell 2.8%, the biggest monthly decline since 1992.

The retail sales estimate was worse than the expected decline of 2.1% and lower than the revised 1.3% decline seen in September. Excluding autos, retail sales fell 2.2% in October. On a year-over-year basis, retail sales are down 4.1%.

October was the fourth consecutive month of falling sales, the worst extended decline in 34 years.

A significant part of the drop was due simply to the falling price of gasoline. Sales at gas stations fell 13% as the price dropped more than $1 a gallon.

The report suggests retailers and consumers will play a game of chicken in the upcoming holiday shopping season, which generates about 20% of annual sales. "Consumers have increasingly been waiting for the deepest price cuts before spending," Nomura chief economist David Resler wrote to clients this morning.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$57.04	$58.24	-$1.20	-15.88%	-40.57%
Heating oil (per gallon)	$1.8318	$1.8750	-$0.0432	-8.70%	-30.86%
Natural gas (per million BTU)	$6.3120	$6.3180	-$0.0060	-6.94%	-15.65%
Unleaded gasoline (per gallon)	$1.2391	$1.3024	-$0.0633	-14.03%	-50.25%

Abercrombie paints a grim picture

Teen retailer Abercrombie & Fitch Friday posted a 46% drop in third-quarter profit, saying it earned 72 cents per share, down from $1.29 per share a year ago -- although ahead of the consensus estimate by a penny.

Sales at stores open at least one year fell 14%, and Abercrombie cut its quarterly outlook to between $1 and $1.05 per share, well below analysts' expectations of $1.57 per share.

The stock was down 20.7% to $17.79.

• Video: Worst drop ever in retail sales

JC Penney (JCP, news, msgs) Friday said sales in the fourth quarter will likely fall as much as 9%. The department store also lowered its quarterly outlook to between 90 cents and $1.05 per share; analysts had forecast $1.32.

JC Penney also posted a 52% drop in third-quarter profit. The stock was down 10.4% to $17.27.

Discount retailer Kohl's said fourth-quarter sales at stores open at least one year will fall between 8% and 12%. "We expect the holiday season to be the most challenging in years," Kohl's CEO Officer Kevin Mansell said in a statement. Kohl's reported a 17% decline in third-quarter profit.

Kohl's shares were down 4.8% to $29.09.

Nordstrom late Thursday said it expects to earn between $1.87 and $1.97 per share for the full year, short of the consensus estimate of $2.12 per share and a big drop from the company's previous guidance of between $2.55 and $2.65 per share.

"We are in unprecedented times, and customers are lacking confidence today," President Blake Nordstrom said on a conference call with investors.

Nordstrom posted third-quarter earnings of $71 million, or 33 cents per share -- a 57% drop from the $166 million, or 68 cents per share, in the same period a year ago.

Nordstrom shares dropped 9.4% to $11.74.

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This week Wal-Mart Stores (WMT, news, msgs) and Best Buy slashed their full-year forecasts, citing the weak economy, and Circuit City (CC, news, msgs) filed for bankruptcy protection.

Job cuts at Citi, Sun

Citigroup (C, news, msgs) will slash an additional 10,000 jobs to try to shave costs, The Wall Street Journal reported this morning. The cuts will come from within its investment banking and other divisions. It has already cut 23,000 jobs in the previous four quarters.

Citigroup will also raise interest rates on certain credit card customers. About 20% of its card holders will see rates rise by an average of 3 percentage points.

Citigroup shares closed up 7 cents to $9.52.

Late Thursday, top executives at the bank bought 1.2 million shares to help boost the company's stock price. CEO Vikram Pandit reportedly bought 750,000 shares; John Havens, head of the company's institutional clients group, purchased 250,000 shares. The executives paid about $9.25 each for the shares.

Citigroup stock has been spiraling lower amid the financial market mess, down 53% since the beginning of October.

Tech company Sun Microsystems (JAVA, news, msgs) Friday said it is cutting 5,000 to 6,000 jobs, or 15% to 18% of its work force.

Shares of Sun rose 1% to $4.12.

Sun's announcement follows one from Intel (INTC, news, msgs) earlier this week.

Euro zone in a recession

The euro-zone economy has officially fallen into recession territory, according to statistics that show that the economy fell by 0.2% in the third quarter after a 0.2% decline in the second quarter.

The technical definition of a recession is two consecutive quarters of declining growth.

Germany and Italy, two of the countries that make up the 15-country zone, are both in recession individually; France has so far narrowly avoided that determination.

European stocks rallied Friday, following Thursday's gains in the U.S. London's FTSE 100 Index was up 1.5%, and the Paris CAC 40 Index had risen 0.7%. The broader DJStoxx 600 Index gained 0.8%.

In Asia, stocks also rose overnight. Japan's Nikkei 225 Index rose 2.7%, Hong Kong's Hang Seng Index was up 2.4%, and the MSCI Asia Pacific Index added 0.8%.

Federal Reserve Chairman Ben Bernanke said that central banks around the world are ready to take more action to combat the crumbling financial markets.

"Policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," Bernanke said in a speech at the European Central Bank in Frankfurt, Germany.

• Video: Bernanke: Central bankers primed for action

Bernanke also complimented his global colleagues. "In times like these, we are especially aware of the importance of having close working relationships with our central bank colleagues around the world," Bernanke said.

World leaders head to Washington

The financial crisis will be front and center at the Group of 20 summit in Washington this weekend.

On Thursday, President Bush cautioned against too much regulation in the financial markets and said the meeting is the first step in trying to fix the crisis. "The crisis was not a failure of the free-market system. And the answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need and move forward with the free-market principles that have delivered prosperity and hope to people across the globe," Bush said at a speech to the Manhattan Institute in New York City.

Leaders from China, Saudi Arabia, Brazil and European nations will be at the summit, but President-elect Barack Obama will not attend.

Investors pull billions from funds

The market's volatility has taken a toll on investors.

Investors pulled a whopping $31.8 billion out of stock-based funds the week through Wednesday, reversing inflows of $2.2 billion the previous week, according to TrimTabs Investment Research.

Prior to last week, equity-based mutual funds had not seen any inflows since July, with investors pulling money out every week since July 24.

Investors also pulled $6.3 billion out of bond funds through Wednesday, after an inflow of $518 million the previous week.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.130%	0.190%	-0.060	-70.11%	-95.86%
5-year Treasury note yield	2.347%	2.387%	-0.040	-16.80%	-32.07%
10-year Treasury note yield	3.750%	3.818%	-0.068	-5.54%	-7.06%
30-year Treasury bond yield	4.230%	4.333%	-0.103	-3.18%	-5.14%
Currencies
U.S. Dollar Index	86.785	87.405	-0.620	0.51%	13.16%
British pound in dollars	$1.4743	$1.4837	-0.0094	-8.36%	-25.89%
Dollar in British pounds	£0.6783	£0.6740	0.0043	9.12%	34.93%
Euro in dollars	$1.2594	$1.2793	-0.0198	-1.21%	-13.83%
Dollar in euros	€ 0.7940	€ 0.7817	0.0123	1.22%	16.05%
Dollar in yen	97.12	97.69	-0.57	-1.52%	-13.17%
Canadian dollar in U.S. dollars	$0.813	$0.826	-$0.0134	-1.75%	-18.13%
U.S. dollar in Canadian dollars	$1.231	$1.210	$0.0207	1.80%	22.14%
Commodities
Gold	$742.50	$705.00	$37.50	3.38%	-11.40%
Copper	$1.7080	$1.6240	$0.08	-6.62%	-43.83%
Silver	$9.4900	$8.8000	$0.69	-2.47%	-36.39%
Corn	$3.8025	$3.7700	$0.03	-5.29%	-16.52%
Crude oil (NYMEX) (per barrel)	$57.04	$58.24	-$1.20	-15.88%	-40.57%