Wal-Mart, Wells Fargo trip stock market bulls

Wall Street's biggest ongoing worries -- the consumer and the banking system -- bubbled back up Wednesday, thwarting the stock market's march to new one-year highs.

It shouldn?t be news that retailers are expecting a difficult holiday season, but Wal-Mart Stores' warning to that effect was enough to spook some investors.

Wal-Mart slumped $1.07, or 2.1%, to $50.63 -- helping to fuel selling in the market overall in the last two hours of trading -- after a company executive cautioned about holiday expectations at an investor conference.

John Fleming, chief merchandising officer, said that consumers? wallets "are challenged," and that the holiday season "is going to be tough, it is going to be late," according to Bloomberg News.

And as if to underscore the point, Wal-Mart announced a new round of price cuts, initially centered on groceries. (It probably wasn't a coincidence that Safeway Inc.'s shares fell 96 cents, or 4.1%, to $22.25.)

Investors seemed to ignore Wal-Mart CEO Mike Duke?s comments at the same conference that "no retail competitor . . . can deliver the kind of growth that Wal-Mart can over the next several years."

Wal-Mart isn?t acting like a growth stock this year: The shares are down 9.7% year to date and have mostly traded between $47 and $52 a share since early April. The Standard & Poor?s 500 index, by contrast, is up 19.7% this year.

Wal-Mart?s slide helped drag the S&P 500 down 9.66 points, or 0.9%, to 1,081.40, erasing an early rally that drove the index as high as 1,101.36 -- a new 52-week high. The Dow industrials fell below 10,000, losing 92.12 points, or 0.9%, to 9,949.36.

Losses in retail stocks were followed by heavier selling of financial stocks in the final hour of trading, after oft-quoted bank analyst Dick Bove at Rochdale Securities downgraded Wells Fargo & Co. stock to "sell" from "neutral," citing concern over the bank?s third-quarter earnings report.

Wells? profit of $3.2 billion, or 56 cents a share, beat expectations, but Bove noted that the bank earned a stunning $3.6 billion from a hedging strategy related to its mortgage-servicing rights -- a gain that may be difficult or impossible to repeat. At the same time, problem loans "rose in every category despite the fact that the loan portfolio is shrinking," Bove wrote.

"It does not appear that the bank can sustain the third quarter?s results," he wrote.

Wells? shares slid $1.56, or 5.1%, to $28.90. The stock is down 2% year to date.

-- Tom Petruno

Photo: Inside a Wal-Mart store. Credit: Joe Raedle / Getty Images