Consumer spending fears hit stocks

US stocks fell on Tuesday, dragged lower by Detroit car makers and consumer-focused companies such as GameStop and Amazon.com.

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The Dow Jones industrial average fell 94.15 points to close at 15,914.62

US stocks fell on Tuesday, dragged lower by Detroit car makers and consumer-focused companies such as GameStop and Amazon.com.

The market could be headed for its first weekly decline since early October, putting at risk a remarkable rally that has sent indexes to record highs.

The declines do not come as a surprise to large investors, many of whom have been predicting a pullback. The S&P 500 has surged 26% this year, on track for its best year since the dot-com bull market of the late 1990s.

Stocks cannot go straight up all the time. For stocks to pause, decline or even enter a "correction", a Wall Street term for when an index falls 10% or more, would all be considered normal after eight straight weeks of gains.

"The markets may have stalled out here, but that must be taken in the context of what has been a great year," said Alec Young, global equity strategist with S&P Capital IQ.

The Dow Jones industrial average lost 94.15 points, or 0.6%, falling to 15,914.62. The Standard & Poor's 500 index fell 5.75 points, or 0.3%, to 1,795.15 and the Nasdaq composite fell 8.06 points, or 0.2%, to 4,037.20.

Companies that depend heavily on consumer spending had some of the biggest losses. GameStop, the video game retailer, sank 1.02 dollars, or 2%, to 45.95 dollars, one of the worst declines in the S&P 500 index. Amazon.com fell 7.64 dollars, or 2%, to 384.66 dollars.

Auto makers fell. General Motors lost 97 cents, or 3%, to 38.14 dollars and Ford fell 50 cents, or 3%, to 16.56 dollars, despite what auto industry analysts considered mostly positive sales reports for November.

The sell-off of auto stocks came as a surprise to industry analysts. Chrysler said sales rose 16% in November compared with a year ago, while GM and Ford's sales increased 14% and 7% respectively. Overall, the industry reported a 9% year-on-year sales gain.

Investors are waiting for several economic reports later this week that could influence whether the Fed will pare back its 85 billion dollar-a-month bond-buying programme, which is designed to keep interest rates low and stimulate the economy.

"When you look at how markets have performed this year, some investors may have decided to cash in, put their feet up and drink eggnog," said Lawrence Creatura, a portfolio manager with Federated Investors.

On Friday, the government will release its monthly job market survey, one of the most closely watched indicators of the US economy. Economists expect that employers created 180,000 jobs last month while the unemployment rate remained steady at 7.2%, according to FactSet, a financial information provider.

Investors have been seeing some encouraging economic news recently. A trade group reported on Monday that manufacturing was growing in the US at the fastest pace in two-and-a-half years. The group also said factories were hiring at the quickest rate in 18 months.

A strong economy is good for corporate profits, and by extension the stock market, over the long term. But if the economy is getting closer to full strength, that means the Federal Reserve could have all the more reason to pull back its stimulus programme, which has been supporting financial markets. The Fed's huge bond-buying programme has been giving investors an incentive to buy stocks by making bonds look more expensive in comparison.

"The concern in the near term is that, since the economic data is picking up steam, the Fed could pull back as soon as January," Mr Young said.

On Thursday investors will have other important economic news to consider, an updated report on US economic growth. Economists expect the economy expanded at a 3.2% annual rate last quarter.

A key worry for investors these days is how willing US consumers are to spend during the holiday shopping season, which is just getting under way.

The National Retail Federation said on Monday that a record number of consumers went shopping over the four-day Thanksgiving weekend. However, the average amount spent by each shopper fell compared with the same period last year, the first decline since the trade group began tracking the figures in 2006.

AP