Wall St slides overnight with consumer spending concerns

Traders Michael Smyth, left, and Eugene Mauro, right, work on the floor of the New York Stock Exchange. Photo / AP

Wall Street slid with shares of retailers and car makers amid concern that a better-than-expected pace of consumer spending is not sustainable.

In 3.02pm trading in New York, the Dow Jones Industrial Average dropped 0.5 per cent, while the Nasdaq Composite Index fell 0.8 per cent. In 2.47pm trading, the Standard & Poor's 500 Index slid 0.7 per cent.

The Dow fell, led by declines in shares of Pfizer and those of Goldman Sachs, down 2 per cent and 1.4 per cent respectively. Bucking the trend were shares of Procter & Gamble and those of Exxon Mobil, recently up 0.5 per cent and 0.3 per cent respectively.

Shares of Pfizer declined after the company reported quarterly results that surpassed estimates but kept its full-year outlook unchanged.

A Commerce Department report showed consumer spending rose more than expected in June, rising 0.4 per cent. Incomes gained 0.2 per cent, which was below expectations.

"The consumer is on a solid track," Thomas Simons, senior money-market economist in New York at Jefferies, told Bloomberg. "The momentum is going to continue into the third quarter and is fuelled by strength in the labour market."

Yet shares of Macy's, Kohl's and Nordstrom all slid on concern that US consumer spending is outpacing an increase in income. Macy's shares traded 8 per cent lower as of 3.14pm, while those of Kohl's fell 8.1 per cent, and those of Nordstrom slid 7.1 per cent.

"It's not sustainable, and items like clothing are among the first things that are going to get cut out of that spending," Bridget Weishaar, an analyst at Morningstar Investment Service, told Bloomberg.

Shares of Ford and General Motors also fell, down 4.2 per cent and 4.5 per cent respectively as of 3.08pm in New York, as both car makers reported July US sales short of estimates.

"What is interesting to note is that while overall national retail spending remains strong and consumer confidence is relatively unchanged, we are probably seeing some attempts in incentive spending to boost auto sales beyond its organic demand," Oliver Strauss, TrueCar's chief economist, told Reuters.

In Europe, the Stoxx 600 Index finished the day with a slide of 0.6 percent from the previous close. The UK's FTSE 100 index declined 0.7 percent, while Germany's DAX index and France's CAC 40 index each sank 1.8 percent.

Germany's Commerzbank and Deutsche Bank fell to record lows, leading a drop in the Stoxx Europe 600 Banks Index.

"I don't want to say it, but it's Armageddon for the banks," if the index drops any further, Joe Tracy, head of continental European equities at Svenska Handelsbanken in Stockholm, told Bloomberg.