Stocks Fall on Negative Economic Data

Stocks were trading lower Friday after Thursday's big rebound, as dismal retail sales figures forcing investors to focus on the economy. Signs of disunity in the government's response to the financial crisis also weighed on equities.

Federal Reserve Chairman Benjamin Bernanke, speaking at the ECB's Frankfurt Central Bank conference, prior to the G20 economic summit in Washington, said that central banks are in close contact and ready to take additional action if necessary, while liquidity measures have led to "tentative improvements" in credit markets. Bush says this will be first of series of meetings to deal with the global financial crisis.

On Friday around 11:30 am ET, the Dow Jones Industrial Average fell 279.72 points, or 3.17%, to 8,555.53. The broad S&P 500 index shed 32.58 points, or 3.58%, to trade at 878.71. And the tech-heavy Nasdaq composite dropped 68.81 points, or 4.31%, to 1,528.03.

On the New York Stock Exchange, 24 stocks were trading lower for every four posting gains, while on the Nasdaq the ratio was 19-5 negative amid moderate trading.

In economic news, October retail sales fell record 2.8%. Excluding autos, building materials and gasoline (the components of the report that feeds into the calculation of nonauto goods consumer spending within GDP), retail sales fell 0.5% in October.

Even after adjusting for price-related drops in gas station sales, this report suggests that consumer spending started the fourth quarter on a very weak note. RDQ Economics estimated that real personal consumption expenditures fell by 0.4% in October and will decline by at least 3%, and possibly more than 4%, for the entire fourth quarter. Much will hinge on the November release of retail sales in fine-tuning the GDP estimate for the fourth quarter, RDQ Economics said in an email note.

Import prices fell 4.7% -- exceeding the 4.4% downturn that was widely expected.

U.S. business inventories fell 0.2% in September and included a 0.2% decline in retail inventories with a 0.3% drop for vehicle inventories, but stronger than expected figures for the remaining components. Inventories had been expected to rise.

The University of Michigan Consumer Sentiment Survey showed an increase in the preliminary reading to 57.9 in November, better than the expected 55.0 after October's 57.6 reading.

U.S. FDIC unveiled a mortgage modification plan aimed at 2.2 million home loans, with incentives for mortgage servicers to modify loans and reset affordable monthly payments. The plan is projected to cost $24.4 billion to the government and potentially prevent some 1.5 million foreclosures, with servicers paid $1,000 toward modification expenses and the FDIC to share up to half the losses in the event of default. The FDIC would manage the plan on the behalf of the Treasury and it appears funding would come from the TARP. The Treasury Dept. is so far not supporting the plan.

Uncertainty surrounds the financial rescue package known as Troubled Asset Relief Program, or TARP. On Tuesday, Treasury Secretary Henry Paulson switched gears by announcing that TARP funds would not be used to purchase illiquid mortgage-related assets from financial institutions. Two months ago, Paulson said TARP would act as a clearinghouse for toxic credit assets such as mortgage-backed securities. Instead, Paulson said those funds will continue to be used to buy shares in banks. The painful downside is that the TARP switcheroo has made matters worse for banks that held assets waiting for a TARP rescue and now must sell them in a far worse market and economy than two months ago, according to the Wall Street Journal. Today is the deadline for banks to apply for cash from the $700 billion TARP plan.

Paulson's latest TARP flip-flop has hammered asset-backed securities, reports the Wall Street Journal. Markit's ABX index of 2006-vintage, triple-A-rated subprime-mortgage securities has fallen 13% since Wednesday to a record low. The cost of default protection on commercial-mortgage debt has jumped to a record high.