By Steve Rothwell
NEW YORK: The stock market fell on Wednesday as a poor earnings report from Macy’s cast doubt on the outlook for consumer spending, a vital component of the U.S. economy.
Other department store stocks also fell after Macy’s reported disappointing earnings for the second quarter and cut its forecast for the year.
The stock market’s early summer rally has fizzled out after a strong July, and August is shaping up to be a lackluster month as many traders and investors take their summer breaks. The major indexes have drifted lower in the past week after climbing to all-time highs at the start of the month.
“I do feel we are going to have a slight negative bias [to stocks], at least until Labor Day,” said Chris Bertelsen at Global Financial Private Capital. “We’ve had a pretty significant run in the market. People are taking some of the stocks that have had big runs, and are moving away from them.”
Consumer discretionary stocks in the Standard & Poor’s 500 index, which include clothing retailers and restaurant chains, have fallen in the past month, paring their gains for the year. Makers of consumer staples, which investors favored early in the year because of the steady earnings they offered, have also dropped in the last month.
The S&P index closed down 8.77 points, or 0.5 percent, to 1,685.39 The index has declined in six of the last eight trading days and is flat for the month. In July it jumped 5 percent.
The sell-off was broad. Technology was the only one of the 10 industry sectors that rose in the S&P 500.
The Dow Jones industrial average was down 113.35 points, or 0.7 percent, at 15,337.66, the biggest drop in six weeks. Twenty-two of the stocks in the 30-member index declined.
The Nasdaq composite fell 15.17 points, or 0.5 percent, to 3,669.27.
Macy’s, which operates its namesake stores and Bloomingdale’s, dropped $2.17, or 4.5 percent, to $46.33 after its profit fell short of analysts’ estimates. Macy’s blamed shoppers’ reluctance to spend for a slip in sales. Nordstrom fell 64 cents, or 1.1 percent, to $59.54. The company reports its second-quarter earnings today. Sears fell 44 cents, or 1 percent, to $41.73.
There were some bright spots for investors.
Apple rose above $500 for the first time since January, climbing as high as $504 during the day, before closing up $8.93, or 1.8 percent, $498.50. The company’s stock jumped 4.75 percent Tuesday after activist investor Carl Icahn said he thinks Apple should be doing more to revive its stock price. Icahn also said he had a large, but unspecified stake, in the company.
The stock market is adjusting to the prospect of higher interest rates as the Federal Reserve contemplates easing back on its stimulus. The central bank is buying $85 billion of bonds a month to keep long-term interest rates low and encourage borrowing and has said it may cut those purchases if it feels the economy is strong enough. Higher interest rates would increase borrowing costs throughout the economy.
In government bond trading Wednesday, the yield on the 10-year Treasury note slipped to 2.71 percent from 2.72 percent Tuesday.
The yield has risen one full percent point since May 3, when it hit its low of the year, 1.63 percent, as investors anticipate that the Fed will step back from its bond purchases.
Big dividend payers such as utilities and phone companies have been slumping since May as Treasury yields have risen.