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Retail Miss, Bank Worries Rattle Market

Stocks ended near their session lows Tuesday after a report showed retail sales unexpectedly dropped in March and as worries about banks simmered ahead of some key earnings.

The Dow Jones Industrial Average tumbled 137.63, or 1.7 percent, to close at 7,920.18. The S&P 500 lost 2 percent, while the Nasdaq skidded 1.7 percent.

Retail sales tumbled 1.1 percentlast month, a big disappointment as economists polled by Reuters had expected a 0.3-percent increase. Excluding the volatile auto component, sales fell 0.9 percent. The two prior months were revised upward, offering some consolation, but the unexpected sharp drop rattled the market.

"The inescapable fact is that the U.S. consumer is faced with daunting fundamentals: Wage and salary income growth has evaporated, credit is very tight, home prices continue to decline ... [which] makes it very likely that the U.S. consumer will remain a drag on economic activity in coming quarters," MFR economist Joshua Shapiro wrote in a note to clients. "Fiscal stimulus will help to blunt this, but is unlikely to turn the tide completely."

Retail stocks skidded, with Macy's off 7.3 percent and JCPenney down 3.5 percent. Discount giant Wal-Mart lost 0.8 percent.

Meanwhile, producer prices, which were eclipsed by the retail report, dropped 1.2 percent. Excluding food and energy costs, core PPI was flat. Business inventories dropped 1.3 percent in February, as expected.

In a highly-anticipated press conference, President Obama reported there are signs of economic progress but cautioned that "by no means are we out of the woods."

And Fed Chairman Ben Bernanke added that recent economic data supported the idea that the "sharp decline in economic activity may be slowing," citing home sales and consumer spending, including car sales.

Financial shares finished mostly lower as the Goldman Sachs-Wells Fargo glow wore off.

Goldman Sachs surprised the market late Thursday, reporting earnings a day earlier than expected. The brokerage beat expectationswithearnings of $3.39 a share, or $1.66 billion. But the investment bank's shares fell in after-hours trading after it said it planned to raise $5 billion in a stock offering to pay back TARP funds it received fro mthe government.

The Goldman beat was an encouraging sign, coming on the heels of a better-than-expected forecast from Wells Fargo last week.

Rochdale Securities analyst Dick Bove raised his price target on Goldman stock to $142 from $123, saying the outlook for the firm "has improved notably," specifically in its trading business.

Still, the stock ended down 12 percent at $115.11.

Citigroup shares soared 5.5 percent to close at $4.01 amid expectations that the bank will post strong results later this week. Analysts cited the fact that Citigroup was one of the first banks to say last that it was profitable in the first two months of the year.

JPMorgan and Bank of America had also said they turned a profit in the first two months of the quarter but the stocks fell more than 8 percent each as investors worried that other banks will follow Goldman's lead and issue stock to pay off the government debt.

In addition to Citi and JPMorgan, CNBC parent General Electric will report earnings this week. Bank of America's results are due out on Monday. GE shares ended down 5.1 percent.

Johnson & Johnson reported its earnings fell but managed to top forecastsamid tight cost controls. The drug maker also backed its outlook for this year. Its shares ended slightly higher.

Shares of fellow Dow component Intel also ended slightly higher ahead of earnings from the chip maker, which came out after the closing bell.

Intel reported earnings of 11 cents a share, less than half of the 25 cents it earned a year earlier, but managed to beat expectations. The big takeaway is that Intel said PC sales "bottomed out" in the first quarter — essentially calling a bottom — but shares fell in after-hours trading as the chip giant refused to provide an outlook.

General Motors shares advanced 4.1 percent, even as people close to the talks with the government said the likelihood that GM will avert a bankruptcy filing is growing slim.

Dendreon shares more than doubled following news that its experimental prostate-cancer drug helped improve the chance of survivalamong men suffering with an advanced form of the cancer.

Volume was moderate, with 1.75 million shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, 2 to 1.

Still to Come:

WEDNESDAY: Weekly mortgage applications; NY Fed Empire State survey; CPI; industrial production; weekly crude inventories; NAHB housing index; Fed's beige book; Earnings from Abbott Labs
THURSDAY: Housing starts; weekly jobless claims: Philly Fed survey; Fed's Lockhart, Yellen speak; Earnings from JPMorgan, Harley-Davidson, Nokia, Southwest Air and Google
FRIDAY: CNBC's 20th Anniversary; consumer sentiment; Bernanke speaks; Earnings from Citigroup, GE and Mattel

Send comments to cindy.perman@nbcuni.com.