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Dow Drops Over 400 Amid Economic Worries

Cindy Perman|CNBC.com
Thursday, 6 Nov 2008 | 3:20 PM ET

Stocks continued to slide Thursday as weak outlooks from Cisco and Toyota, dismal October retail sales and the prospect of a very grim payrolls number tomorrow rattled the market.

The Dow Jones Industrial Average wandered around at the open, then spiraled into a triple-digit decline and was down more than 400 in afternoon trading. The Standard & Poor's 500 index and Nasdaqalso declined, with the S&P being the hardest hit of the three.

The CBOE volatility index, which has been steadily ticking higher since bottoming at 44.25 on election day, soared past 60. Still, it's a far cry from the fear gauge's peak of 89.53 in October.

This is the market's second straight day of decline. All three indexes shed more than 5 percent on Wednesday as anxiety over the economy returned after a brief sigh of relief following the historic presidential election in which Barack Obama became the first African-American to be elected president.

The morning's gloom overshadowed any comfort traders may have taken from some pretty hefty rate cuts across the pond. The Bank of England slashed its key lending rate 1.5 percentage points to 3 percent and the European Central Bank cut a key rate by half a percentage point.

In the U.S., the number of workers filing first-time claims for unemployment insurance fell by 4,000to 481,000 last week, in-line with expectations. The prior week, however, was revised to 485,000 from 479,000. The four-week moving average, which smooths out weekly fluctuations, was unchanged at 477,000.

U.S. business productivity slowed sharply in the third quarter, indicating that wave of layoffs is starting to take a toll on business output. Productivity fell to an annual rate of 1.1 percent, the Labor Department reported, less than a third of the 3.6 percent rate in the second quarter. Output posted its biggest drop in seven years.

The big number on the market's mind is tomorrow's payrolls number. Economists expect a drop of 200,000, which would be the 10th straight decline and the biggest drop in 5 1/2 years.

And the market buzz is that that may be too optimistic.

The whisper numbers are probably closer to 250,000 or more, says Miller Tabak's Tony Crescenzi. That's a far cry from a few months ago, when forecasts were calling for declines of around 75,000, suggesting that "the degree of preparedness for bad news has reached new heights," Crescenzi wrote in a morning note.

Cisco shares declined after the networking-gear maker warned late Wednesday that its revenue could drop as much as 10 percentin the current quarter as the economic slump spreads to Europe and Asia.

And American depositary shares of Toyota tumbledafter the Japanese auto maker slashed its annual operating profit forecast by more than half, as the financial crisis hit auto demand, cut access to credit and sent the yen higher.

Oil prices also continued to reverse a sharp move higher Monday, with crude dropping more than $4, trading below $61 a barrel.

Seller Beware
A look ahead of the same-store sales numbers as many predict this will be a weak holiday shopping season, with Dana Telsey, Telsey Advisory Group chief research officer

Retailers reported some of the weakest chain-store sales in more than a decade as consumer spending dried up in October amid uncertainty brought on by the financial crisis and mounting layoffs.

(Dana Telsey, of the Telsey Advisory Group, analyzes retail sales in video at left.)

Some of the steepest declines came from department and specialty stores. Shares of AnnTaylor and Talbots fell sharply as the chains announced restructuring efforts after posting steep sales drops. AnnTaylor's same-store sales fell 19 percent, while Talbots reported a 13.9-percent decline and said it planned to sell its J.Jill clothing brand.

"The dramatic deterioration in both the financial markets and the macroeconomic environment in September and October has put additional pressure on the retail industry, in general, and the women's apparel sector, in particular," Ann Taylor Chief Executive Kay Krill said in a statement.

The only ray of light came from Wal-Mart , which reported October sales rose 2.4 percent as the discount chain's low prices resonated with its core customer base and even shoppers who usually go higher end but have begun to trade down as the economic picture worsens.

Wal-Mart has seized the opportunity, saying it will continue to slash prices every week until Christmas in an effort it has dubbed "Operation Main Street."

Rupert Murdoch's News Corp cut its full-year forecast and posted a worse-than-expected 30 percent drop in quarterly profit because of falling TV advertising.

Belgian brewer InBev insisted its $52 billion takeover of Anheuser-Busch was on track after third-quarter results slightly exceeded expectations despite rocketing costs.

Shares of Playboy Enterprises tumbled after the adult-entertainment company projected a sharp decline in ad revenuefor the current quarter after posting a loss for the third quarter.

Still to Come:

THURSDAY: Monthly chain-store sales; Earnings from Anheuser-Busch
FRIDAY: Jobs report; pending-home sales; wholesale trade; consumer credit; Earnings from Ford, Sprint Nextel and Berkshire Hathaway

Send comments to cindy.perman@nbcuni.com.

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