MarketView for November 14

Summary

Stocks slid on Wednesday with declines accelerating after President Barack Obama set up a drawn-out fight over the fiscal cliff when he stuck to his pledge to raise taxes on the wealthy, and as violence increased in the Middle East. Wall Street had opened higher after Cisco Systems reported first-quarter earnings and revenue late Tuesday that beat expectations, driving its stock up 4.8 percent to $17.66. However, the positive momentum was short-lived.

Obama, in his first press conference since re-election, held to his position that marginal tax rates will have to rise to tackle the nation's deficits. With talks over solving the fiscal cliff in early stages, investors are reacting to the uncertainty by shedding positions. Without a deal, a series of mandated tax hikes and spending cuts will start to take effect early next year that could push the U.S. economy into a recession.

Taxes on capital gains and dividends could rise as part of the negotiations, pushing investors to sell this year and pay lower taxes on their gains. Adding to the selling pressure, Israel launched a major offensive against Palestinian militants in Gaza, killing the military commander of Hamas in an air strike and threatening an invasion of the enclave. Egypt said it recalled its ambassador from Israel in response.

Industrial shares led the decline, dragged lower in part by a 1 percent spike in crude prices after the Israeli offensive on Gaza.

Both the Dow industrials and the Nasdaq ended at their lowest levels since late June. The S&P 500 is down 5.1 percent in the six sessions since election night. Wednesday marked the benchmark index's lowest close since July 25.

FedEx ended the day down 3.7 percent to close at $87.12. Bank of America lost 3.6 percent to close at $8.99.

In contrast, Facebook rose 12.6 percent to $22.36 as investors were relieved that expiring trading restrictions on a huge block of shares did not trigger an immediate wave of insider selling.

Abercrombie & Fitch ended the day up 34.4 percent to $41.92 after the company reported unexpectedly improved third-quarter results and a full-year outlook that exceeded Street forecasts.

About 7.53 billion shares changed hands on the three major equity indexes, a number that exceeded the daily average so far this year of about 6.51 billion shares.

Lower Retail Sales

Retail sales fell in October for the first time in three months as Sandy slammed the brakes on automobile purchases, suggesting spending lost momentum early in the fourth quarter. According to a report released on Wednesday by the Commerce Department, retail sales declined 0.3 percent after a 1.3 percent increase in September. Part of the fall in sales was payback after two straight months of solid gains. It could also be a sign of hesitation among consumers facing the prospect of higher taxes next year. Even excluding autos, retail sales were flat last month.

Car manufacturers blamed Sandy, the monster storm that lashed the densely populated East Coast and caused up to $50 billion in damage, for the abrupt pullback in sales last month. Automakers said traffic at East Coast dealerships slowed as residents began to brace for the storm, which hit at the end of the month. Sales tend to build up late in the month, which likely amplified the impact. Ford Motor Corp estimated the industry lost sales of 20,000 to 25,000 vehicles, while Toyota put the loss at 30,000.

The Commerce Department said it had received indications from companies that the storm had both positive and negative effects on retail sales overall, but was unable to quantify them.

Motor vehicle sales declined 1.5 percent, the largest fall since August last year, after increasing 1.7 percent in September. Excluding autos, retail sales were unchanged last month after advancing 1.2 percent in September. The storm also likely dented sales at clothing stores, but probably boosted receipts at food and beverage stores.

Even accounting for Sandy's impact, the retail sales report highlighted the sluggishness of domestic demand. So-called core retail sales, which exclude autos, gasoline and building materials and which correspond most closely with the consumer spending component of GDP, fell 0.1 percent. They had increased 0.9 percent in September. The drop suggested consumer spending slowed early this quarter after ending the July-September period on a solid footing.

Building materials and garden equipment sales fell 1.9 percent, while sales of electronics and appliances fell 1.0 percent, unwinding some of the prior month's boost from purchases of Apple's iPhone 5. Receipts at gasoline stations surprisingly rose 1.4 percent last month, despite pump prices falling almost 10 cents.

Meanwhile, the Labor Department reported on Wednesday that its producer price index fell 0.2 percent last month, the first decline since May. The index had increased 1.1 percent in September. If you exclude volatile food and energy costs, wholesale prices also fell 0.2 percent, the largest decline since October 2010.

The fall in this core gauge was tied to the introduction of new motor vehicle models, which can skew the data. Excluding autos, the core PPI was flat, consistent with a benign inflation environment, which should suit the Fed's accommodative policy.