Stocks Fold in Face of Higher Oil, Weak Retail

The sales data "was reported as close to consensus as you can get," said Haseeb Ahmed, U.S. economist for JPMorgan Economics. "Things are slowing down on the consumer-spending front as the rebates are fading, but they're not collapsing." He said that the government's stimulus package did help prop up the consumer during the second quarter. The recent drop in gasoline prices will help, but will not be enough to offset the waning effect of the rebate checks in coming months, he said.

The Census Bureau also announced Wednesday that business inventories rose 0.7% in June, a larger-than-expected jump and a larger one than the 0.4% increase in May.

Traders will also be focusing on the behavior of numerous financial-services stocks, as well as mortgage giants Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), following Tuesday's expiration of a government regulation banning so-called naked short-selling of their stocks. Fannie fell 4.1% to $7.69, while Freddie added 3.4% to $5.55.

On the companies side, semiconductor firm Nvidia (NVDA Quote) said it swung to a quarterly loss because of flawed chips and a failure to anticipate the impact of a new graphics chip from rival Advanced Micro Devices (AMD Quote). However, the announcement of a share buyback gave the stock a boost. Nvidia shares ended up 11% at $12.26.

Another piece of discouraging news in the semiconductor sphere came from Applied Materials (AMAT Quote), which said its profit declined 65% for the third quarter owing to the economic slowdown. Shares nonetheless climbed 4.7% to $19.33 after the company said upcoming quarters would yield improved performance.

In other earnings news, farm-equipment maker Deere (DE Quote) reported third-quarter earnings that rose year over year but fell short of analyst expectations. Shares fell 3.2% to $67.10. Dow component and fellow equipment manufacturer Caterpillar (CAT Quote) was trading down on Deere's results, down 2.8% to $69.83. Department-store operator Macy's (M Quote) announced a decline in second-quarter profit and lowered its full-year outlook. Shares climbed 1.9% to $20.66.