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Things went from bad to worse for retailing and the financial world Monday.
In Washington, House lawmakers voted down a $700 billion Wall Street bailout package by a 228-205 margin, prompting investors to wonder when — and how — the credit freeze would thaw, and pushing retail stocks to record declines as already-skyrocketing fears over consumer confidence and holiday spending entered the stratosphere.
The Standard & Poor’s Retail Index plummeted 6.7 percent, or 25.25 points, to 350.42 — the largest percentage drop in the index since it was recalibrated in mid-2002. Both the second and third largest drops, 6.4 and 5.9 percent, respectively, were registered earlier this month as investors rode roller-coaster markets driven by bank failures, government takeovers and a severe lack of credit.
The 777.68 point drop in the Dow Jones Industrial Average, to 10,365.45, was the single biggest point decline on record, nearly 100 points worse than when the markets opened on Sept. 17, 2001, following the 9/11 terrorist attacks. The 7 percent decline in the Dow was the 17th worst on record in percentage terms.
The continuation of the crisis will only add to the anxiety of shoppers, who are already battling a host of economic woes.
“It will make it more difficult for the consumer to have any confidence in the government because of the lack of leadership,” retail consultant Walter Loeb said.
And the news, even with the defeat of the bank bailout, just keeps getting worse as consolidation roils on in the banking sector. On Monday, it was the government-backed sale of Wachovia Corp. to Citigroup which followed last week’s collapse of Washington Mutual, marking the largest bank failure ever. This month the government has also taken over mortgage giants Freddie Mac and Fannie Mae, as well as insurance giant American International Group. Investment house Lehman Brothers was allowed to fail.
Still, the fallout could ultimately provide some opportunity for investors.
“You have to let the fury of the current day go past and in the next few days, people will realize neither industrial nor any commercial companies have really failed as a result of this,” Loeb said. “There is still a lot of potential in these industries. The market will go up and recover some of the lost ground.”
But the commotion in Washington is ultimately expected to weigh on the consumer, who already has been laid low by high fuel costs and a worsening job outlook.