Stocks Drop as Investors Worry About Consumers (ext: ABCNews)

Stocks fell sharply Friday, taking the major indexes down about 1 percent, after investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of August. That's a sign consumers may well keep cutting back their spending as they worry about losing their jobs. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported an unexpected decline in retail sales. Investors were able to shake that off, but Friday's consumer sentiment number had them bailing out of stocks, jeopardizing a summer rally that had lifted the Standard & Poor's 500 index more than 15 percent in about a month. Still, the indexes finished well off their lows of the day, a sign that the mood on Wall Street isn't all that grim, and light volume likely skewed price changes.
After rallying for months on expectations of an economic recovery, investors are worried that they have been too optimistic, given consumers' continuing reluctance to spend. Analysts are predicting that the market may be rocky for some time.

The Dow Jones industrial average fell 76.79, or 0.8 percent, to 9,321.40 after falling as much as 165 points after the consumer sentiment survey was released.

The S&P 500 index fell 8.64, or 0.9 percent, to 1,004.09, while the Nasdaq composite index fell 23.83, or 1.2 percent, to 1,985.52.

The drop erased much of the market's advance of the last two days, and gave the big indexes their first losing week after four weeks of gains. The Dow was down 0.5 percent for the week, while the S&P 500 index fell 0.6 percent and the Nasdaq was off 0.7 percent.
"I think you're going to need to see a material stabilization in labor markets before you get meaningful and stable consumer confidence," said Stephen Wood, chief market strategist at Russell Investments. "And we're certainly not adding jobs and we're not even at a point where jobs are no longer being lost."