Stocks drop even as retail sales unexpectedly rise; record-breaking rally takes pause


NEW YORK — A record-breaking rally in stocks stalled today as investors assessed whether stock valuations were overstating the improvement in the economy.

Stocks started the day lower even after the government reported that Americans increased spending at retailers last month. The spending rebounded from March, suggesting that consumers may boost economic growth in the current quarter ending June 30.

“What we have seen is a huge rally, and there aren’t any stones unturned at this point,” said Alec Young, global equity strategist at S&P Capital IQ. “You reach a point where investors aren’t willing to bid things up any more.”

Stocks have surged this year, boosted by an improving economy, Federal Reserve stimulus, and record corporate earnings. The Dow Jones industrial average and the Standard and Poor’s 500 both closed at record highs Friday.

Retail sales increased 0.1 percent in April from March, the Commerce Department said today. That’s an improvement from the 0.5 percent decline in March, which was the largest drop in nine months. Sales had been expected to decline 0.3 percent.

The Dow fell 39.58 points, or 0.3 percent, to 15,078. The Standard and Poor’s 500 index dropped two points, or 0.2 percent, to 1,631.

More than 90 percent of companies in the S&P 500 have reported earnings for the first quarter, and corporate earnings are projected to grow by an average of 5 percent for the period, according to data from S&P Capital IQ. While earnings growth has slowed from the previous quarter, it is forecast to end the year at 11.6 percent.

Among stocks making big moves:

— Yum Brands fell $1.84, or 2.6 percent, to $68.55 after the owner of Kentucky Fried Chicken reported that sales in China fell 29 percent last month, driven by concerns about Avian flu.

— Theravance, a biopharmaceutical company, surged $5.05, or 14 percent, to $39.90. Irish drugmaker Elan Corp. plans to pay $1 billion for the right to future royalties from respiratory treatments being developed by Theravance and GlaxoSmithKline.

In commodities trading, oil fell $1.31, or 1.36 percent, to $94.74 a barrel. Gold dropped $5, or 4.6 percent, to $1,431 an ounce. The U.S. dollar fell to 101.70 Japanese yen.

In government bond trading, the yield on the 10-year Treasury note rose to 1.92 percent from 1.90 percent. The yield has jumped this month as investors sold Treasurys’ and moved into riskier assets.

The Nasdaq composite was little changed at 3,436.