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 was down seven points, or 0.4 percent, to 1,686 as of 3:20 p.m. Eastern Daylight Time. The index is up just 0.1 percent for the month. In July it jumped 5 percent.
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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 89 points, or 0.6 percent, at 15,361, putting the index on track for its biggest drop in six weeks. Twenty-two of the stocks in the 30-member index declined.
The Nasdaq composite fell 14 points, or 0.4 percent, to 3,670.
Macy's, which operates its namesake stores and Bloomingdales, dropped $2.05, or 4.2 percent, to $46.45 after its profit fell short of analysts' estimates. Macy's blamed shoppers' reluctance to spend for a slip in sales.
Nordstrom, a rival to Macy's, fell 91 cents, or 1.5 percent, to $59.27. The company reports its second-quarter earnings on Thursday. Sears fell 48 cents, or 1.1 percent, to $41.69.
There were some bright spots for investors.
Apple rose above $500 for the first time since January, climbing as much as $11.6, or 2.4 percent, to $501, in early afternoon trading. 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 like utilities and phone companies have been slumping since May as Treasury yields have risen because some investors bought those stocks as an alternative to bonds as a source of investment income.
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Home builders have also been falling because government bond yields are used to set mortgage rates. If mortgage rates increase sharply, it could cool demand for homes and squelch a recovery in the housing market.
PulteGroup dropped for a seventh day out of the past eight, declining 26 cents, or 1.7 percent, to $15.13. Lennar dropped 59 cents, or 1.8 percent, to $31.57.
Investors may also be turning their attention back to Europe.
Data showing that the economies of the countries that use the euro were out of recession gave a jolt to European stocks Wednesday. Eurostat, the European Union's statistics office, said the eurozone posted its first growth in the second quarter of the year since it entered recession in late 2011.
"There are now clear signs that Europe is turning," said Jurrien Timmer, a portfolio manager at Fidelity Investments. The "U.S. could underperform Europe here, or may trade sideways while Europe advances."
While the S&P 500 has advanced 18.3 percent this year, Europe's biggest stock indexes have gained less. Germany's benchmark DAX index has climbed 11 percent, France's CAC-40 has gained 13 percent, and Italy's FTSE MIB has risen 7.3 percent.
In commodities trading, the price of oil edged up 2 cents to $106.85 a barrel. Gold rose $12.90, or 1 percent, to $1,333.40 an ounce.
The dollar fell against the euro but rose against the Japanese yen.
Among stocks making big moves:
SeaWorld, which made its stock market debut in April, slumped $1.42, or 3.9 percent, to $34.87 after the company reported a loss for the second quarter as foul weather and higher ticket prices kept crowds away.
Steinway Musical Instruments jumped $3.22, or 8.4 percent, to $41.49 after agreeing to be purchased for $499 million by the investment firm Paulson & Co.
By STEVE ROTHWELL
AP Markets Writer
(AP:NEW YORK)
