Stocks Fall as Consumer Spending Slides

U.S. stocks retreated Wednesday as traders took a breather after a three-day winning streak.

"What rally we had was on decreasing volume so it's really a pretty easy bet — betting on the market going down as opposed to going up," Daniel Frishberg, chief investment officer at LafferFrishberg.com, told "Worldwide Exchange."

Stocks ticked higher on Tuesday, adding to the nearly 900 points gained in the two days prior, as news of the new stimulus strategy helped to push mortgage rates lower.

The state of the economy will be in sharp focus again today, the kitchen-sink day of economic reports ahead of the Thanksgiving holiday.

Consumer sentiment fell to a 28-year low in November as mounting job losses, falling incomes and declining household wealth battered sentiment, a Reuters/University of Michigan survey showed.

And they spent less, with consumer spending down 1 percent in October, the sharpest drop in seven years, even as income rose 0.3 percent.

No more was that more evident than in spending on big-ticket items such as cars and appliances: Durable-goods orders tumbled 6.2 percent last month, more than double of what economists had expected. Excluding the volatile transportation component, orders were were nearly three times worse, falling 1.5 percent when economists had expected a 4.4-percent drop.

Midwest manufacturing activity contracted more than expected in November, the Chicago Purchasing Managers' Index showed.

Meanwhile, it wasn't much better on the employment front: Jobless claims dropped more than expected last week, falling 14,000 to 529,000.

New-home sales dropped 5.3 percent to a 433,000 annual rate in October, an 18-year low as prices fell to 2004 levels.

One bright spot was mortgage applications, which rose 1.5 percent last week as a drop in mortgage rates boosted demand.

Today's earnings reports fanned the flames:

Tractor maker Deere reported its earnings declined and lowered its 2009 forecast.

Upscale jeweler Tiffany also reported its profit fell and slashed its full-year forecast, saying it plans to cut costs and pare down its staff.

>> Check in on how the holiday season is shaping up at CNBC's Holiday Central.

Oracle shares slipped amid worries that the software maker could miss its quarterly-sales target as the U.S. slowdown clips technology spending and the strong dollar curbs sales outside the U.S.

Other big-cap techs rebounded, however, after the previous day's selloff. Research In Motion , Apple and Dell posted strong gains.

President-elect Barack Obama will try and further calm the markets during a press conference at 10:45 am where he's expected to give more details on plans to rescue the economy.

• Pros Say: Obama's Plan Won't Rekindle Economy

The chair of Obama's new economic advisory panel will be former Federal Reserve Chairman Paul Volcker, according to a report from the Wall Street Journal.

Investors remained wary of further downside for stocks while some tentatively hoped for a pre-Christmas rally.

"Sentiment is changing a little bit," said Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "I think the panic is subsiding and people are starting to look at stocks again — and credit markets — based on fundamentals and that's a good thing."

"We may be able to have a Santa Claus rally," Baum said.

Citigroup shares ticked rose more than 3 percent after the bank gained another high-profile investor last week as Inbursa, the investment firm controlled by Mexican billionaire Carlos Slim, bought roughly 26 million shares of the bank, sources told CNBC.

But other bank stocks declined, with Dow components Bank of America and JPMorgan down more than 3 percent, after a well-known analyst said U.S. banks will likely take another $44 billion in write-downs in the fourth quarter.

In a research report titled "Gobble Gobble," Oppenheimer analyst Meredith Whitney money pumped into the sector from the Troubled Asset Relief Program (TARP) won't spur meaningful growth in the industry as much of the capital raised will be offset by these write-downs.

Still to Come:

WEDNESDAY: Weekly oil and natural-gas inventories
THURSDAY: All US financial markets closed for the Thanksgiving holiday
FRIDAY: NYSE closes at 1pm

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