Transcripts

Lack of Consumer Spending Scares Wall Street

SUSIE GHARIB: Investors got spooked today on worries about the durability of the economic recovery. The Dow tumbled 250 points, erasing yesterday's gains, while the NASDAQ lost 52. Several economic developments were the catalyst behind the selling: a government report showing consumer spending fell a half a percent in September, its biggest drop in 10 months and the University of Michigan consumer confidence index also fell. Erika Miller takes a look at whether October's sell-off will continue to haunt the markets.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you want to know what put Wall Street in a sour mood today, it's you, the consumer. Today's personal spending and consumer sentiment reports cast doubt on American's willingness to spend and that is calling into question the strength of the economic recovery. But economist Christopher Low says he's not worried.

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL: The consumer is battered and bruised by the recession, but beginning to recover. And we're going to have a Christmas that's better than last year, from a retail sense, not as good as the year before. But by the first quarter, if we start to see some job growth, then things should start to improve at a faster rate.

MILLER: If he's right, today's market sell-off may just be a long overdue correction, not the start of a bear market. The S&P 500 benchmark has risen more than 50 percent since March and as market strategist Mike Ryan points out, the index has gone up almost in a straight line.

MICHAEL RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: We didn't see a correction of more than 7 percent and that's really unheard of. Typically, you get these periodic setbacks of 5, 7, 10 percent in the market. The fact that this market ran up in an almost uninterrupted manner suggests that there was some room for profit taking and certainly some room for consolidation.

MILLER: Most analysts think we'll see more volatile days like today in the coming months. The CBOE volatility index staged its biggest one-day surge this year, as nervous investors bought options protection for their stocks. The stock market is expected to continue to take its cues from economic data, including next Friday's employment report.

RYAN: If you look at it in terms of the most comprehensive, timely data report, typically is the employment report. It gives you sort of a window into what's happening in the overall economy. So, I do think there's going to be a lot of emphasis placed on that payroll report.

MILLER: October has a reputation for being one of the worst months for the stock market and today's market losses wiped out all of October's gains in the S&P 500, leaving the index with its first monthly loss in seven months. Erika Miller, NIGHTLY BUSINESS REPORT, New York.