Weak December sales reports, even from some of the biggest discount names, hurt stocks Thursday, but strength from Microsoft helped prevent further losses.
Wal-Mart led the market's negative turn as the retail giant disappointed the market with December sales numbers that missed analyst expectations. The stock was one of only two Dow industrial gainers last year and had been considered an oasis amid a desert of economic despair.
But losses were mitigated somehwat as weekly jobless claims were not as bad as expected even though continuing claims rose and analysts estimated that Friday's monthly numbers could show a 7 percent unemployment rate.
Also, shares of Microsoft gained ahead of the test rollout of its Windows 7 software Friday.
Wal-Mart shares fell after the nation's largest retailer said its sales for the month gained just 1.7 percent against estimates of 2.8 percent.
At the same time, shares of Intuitive Surgical tumbled on the Nasdaq as the company said its quarterly profit rose 22 percent, but below analyst expectations.
On the upside, Sears Holding shares soared even as the company reported December sales that dropped 7.3 percent. The silver lining for the ubiquitous retailer was Kmart, which saw a drop of only 1.1 percent that company officials attributed to its aggressively promoted layaway plan.
Wal-Mart wasn't alone in reporting December sales that fell short of expectations.
Costco Wholesale reported a 4 percent fall in sales at stores open at least a year in December, hurt mainly by lower gas prices and foreign exchange losses. Same-store sales in the U.S. fell 2 percent, while international division sales fell 11 percent.
Also in retail, Macy's is expected to announce it will close 10 locations, the Wall Street Journal reported citing a person familiar with the matter, as the retailer had reported a $30 million loss in the first nine months of 2008, with sales dropping 4.3 percent.
The entire sector was hit by a raft of warnings outlooks, including from J. Crew , which cut its full-year guidance and issued a warning about fourth-quarter numbers.
Wal-Mart was by far the biggest loser on the Dow, followed by Home Depot and Alcoa , which said earlier in the week that it would institute a broad round of layoffs.
There was little to get excited about among the bluechip index, though energy leader ExxonMobil got a mild boost even as oil prices slipped for a second consecutive day and Citigroup moved higher as well.
In other news, the Bank of England is expected to cut interest rates to a record low in an attempt to rein in the effects of the global economic slowdown.
And talks between Russia's Gazprom and Ukraine's Naftogaz over frozen gas supplies for Europe continue, officials from Naftogaz said.
Asian stocks closed sharply lower as risk aversion returned after a string of bad news on the U.S. economy, and European shares were also trading down.