Late Selling Drops Stocks

Updated from 3:20 p.m. EST

Stocks finished lower on Friday, amid a disappointing retail sales report that followed the cautious holiday outlooks expressed by Wal-Mart (WMT Quote) and Kohl's (KSS Quote).

The Dow fell 69.26 points, or 0.7%, to 9768.68; the S&P 500 dipped 8.06 points, or 0.8%, to 1050.35; and the Nasdaq Composite stumbled 37.09 points, or 1.9%, to 1930.26. The Dow and S&P 500 have now fallen in seven of the nine sessions since hitting new 17-month highs last Monday.

Volume on the New York Stock Exchange was 1.34 billion shares, while 1.82 billion shares exchanged hands on the Nasdaq.

Ken Tower, CyberTrader's chief market strategist, said "traders were clearly disappointed by this morning's economic news."

The government said retail sales dipped by 0.3% in October, slightly worse than economists' expectations. Retail sales fell 0.2% during the same period last year.

David Greenlaw, U.S. economist at Morgan Stanley, said the retail sales results were "reasonably close to expectations." In a note to clients, he added, "Clearly, the consumer has taken a bit of a breather over the past couple of months."

On the positive side, but with little effect on the market, the University of Michigan's preliminary report on November consumer sentiment came in at 93.5, up from 89.6 in October and slightly ahead of expectations.

The producer price index rose by 0.8% in October, four times the consensus expectation. Although it may be an early indication that pricing power is returning, the Federal Reserve has shown no inclination to alter monetary policy. Many economists, and Fed officials themselves, stress that interest rates will stay low until unwanted disinflation has been eliminated.

Still-sluggish industrial production data also suggest the Fed is justified in keeping rates low for a "considerable period." Industrial production rose a weaker-than-expected 0.2% in October, while capacity utilization rose to 75% from 74.7%, in line with expectations. The nation's output gap has been one of the key factors restricting corporate pricing power, and Friday's data suggest little improvement on that front.