By Elizabeth Stanton
Feb. 6 (Bloomberg) -- U.S. stocks fell for a third day, led by energy shares and retailers, after oil prices dropped, Macy's Inc. cut its earnings forecast and a Federal Reserve official signaled that higher inflation may prevent more rate reductions.
The Standard & Poor's 500 Index erased a gain of as much as 1.2 percent after Macy's said it will eliminate 2,300 jobs, sending chain-store shares to their steepest three-day drop in five years. Chevron Corp., the second-biggest U.S. oil company, retreated to a nine-month low as oil declined by more than $1 a barrel. Micron Technology Inc., the largest U.S. maker of memory chips, fell the most since October 2006 after an analyst said computer companies have stockpiles of unused parts.
The S&P 500 lost 10.19 points, or 0.8 percent, to 1,326.45. The Dow Jones Industrial Average declined 65.03, or 0.5 percent, to 12,200.1. The Nasdaq Composite Index decreased 30.82, or 1.3 percent, to 2,278.75, the lowest since October 2006, weighed down by a 5.7 percent drop in Apple Inc. More than two stocks fell for every one that rose on the New York Stock Exchange.
``The Macy's news shows how quick on the trigger investors are,'' said James Gaul, a portfolio manager at Boston Advisors LLC, which oversees $2.2 billion in Boston. ``Companies that are even a little bit squishy in their estimates are getting punished for that. It's going to be that way till the economy shows it's not as bad as we thought it was.''
The lowered forecast at Macy's, the second largest U.S. department store chain, reignited concern that the housing slump has caused consumer spending to slow. J.C. Penney Co., Target Corp. and Circuit City Stores Inc. also slumped following Macy's announcement and retailers lost 1.9 percent as a group, the biggest drop among 24 industries in the S&P 500.
Stocks gained earlier as Walt Disney Co. led a rally in consumer shares and BHP Billiton Ltd.'s bid for Rio Tinto Group spurred speculation about more mining takeovers.
Macy's slid $1.16, or 4.6 percent, to $23.94. The retailer cut its fourth-quarter earnings forecast to $1.57 to $1.62 a share, excluding a tax benefit, from a previous projection of $1.70 to $1.80. The company said it won't meet its target for earnings before interest, taxes, depreciation and amortization in 2008 and 2009 because of a drop in sales growth.
Sales at stores open more than a year fell 7.1 percent in January, missing the company's forecast for a decline of 4 percent to 6 percent.
J.C. Penney, the third-biggest U.S. department store chain, lost $1.72 to $43.72. Target, the second-largest discount chain, tumbled $1.75 to $51. Circuit City, the second-biggest electronics chain, fell 17 cents to $4.72.
The S&P 500 Retailing Index has lost 8.3 percent this week, the biggest three-day tumble since August 2002.
Micron tumbled 85 cents, or 11 percent, to $6.99. Memory chips sold for less than they cost to produce last year, leading personal-computer manufacturers to stock up, according to Bear Stearns & Co. analyst Gurinder Kalra. Prices have risen since December, so they have slowed orders, he said.
Apple, maker of the iPod music player, lost $7.36 to $122.
Philadelphia Fed Bank President Charles Plosser warned today that slower growth by itself won't tame inflation and there are some signs from price expectations that the Fed's credibility may be weakening.
Plosser, who votes on rates this year for the first time since taking office in 2006, forecast a 1 percent growth rate in the first half, with inflation at 2 percent to 2.5 percent this year. If conditions evolve differently than expected, the Fed must be ready to incorporate the changes in its policy decisions, he said in a Birmingham, Alabama, speech.
Interest-rate futures show most traders expect the Fed, which dropped its target for the overnight lending rate between banks to 3 percent from 4.25 percent in two steps last month, to lower it to 2.50 percent at the next scheduled meeting on March 18. A growing minority of 32 percent expects the target to fall to 2.25 percent, according to Fed funds futures trading.
General Motors Corp., the world's biggest automaker, and Ford Motor Co. dropped after Bear Stearns Cos. lowered its recommendation on the shares.
General Motors was downgraded to ``underperform'' from ``peer perform'' at Bear Stearns, which also cut its recommendation on Ford, the second-largest U.S.-based automaker, to ``peer perform'' from ``outperform.''
The changes ``reflect renewed concerns that both the propensity and ability of the automotive consumer to purchase vehicles is deteriorating at an accelerating rate,'' analysts including Peter Nesvold wrote in a report.
GM fell the most in the Dow average, losing 76 cents, or 2.9 percent, to $25.71. Ford retreated 12 cents to $6.31.
Shares of exchanges that trade financial futures fell after the U.S. Justice Department said futures markets that clear their own trades may be anti-competitive.
CME, Nymex Tumble
CME Group Inc., the futures market trying to buy the New York Mercantile Exchange, lost 18 percent, the biggest drop in its five years as a public company, to $485.25. Nymex Holdings Inc., which owns the Nymex, dropped 18 percent to $87.88, its biggest drop since going public in November 2006. Intercontinental Exchange Inc., owner of Europe's largest energy market, declined 7 percent to $115.90.
Brokerage shares dropped on concern trading in debt-related securities is drying up. Bear Stearns Cos. lost $3.86 to $82.25. Goldman Sachs Group Inc. fell $2.69 to $187.17. Merrill Lynch & Co. retreated $1.72 to $52.78.
``Credit markets are trading like we're in the middle of the worst recession we've seen in a very, very long time,'' Goldman CFO David Viniar said at an investor conference in Naples, Florida. ``Fear has overwhelmed greed.''
Walt Disney jumped $1.43, or 4.8 percent, to $31.50 and was the biggest gainer in the Dow average. Net income in the first quarter was 63 cents a share, beating the 52-cent average estimate of 19 analysts. Sales rose 9.1 percent to $10.45 billion, surpassing the $10.1 billion average estimate.
Disney led media companies to a 1.1 percent gain, the most among 24 industry groups in the S&P 500. Time Warner, the world's largest media company, increased 31 cents to $15.71 after the company forecast earnings growth of as much as 9 percent in 2008.
Newmont Mining Co., Barrick Gold Corp. and Goldcorp Inc. gained after Australia's BHP Billiton, the world's largest mining company, raised its hostile bid for the U.K.'s Rio Tinto Group to $147 billion. Aluminum Corp. of China, China's biggest aluminum company, and Alcoa Inc. last week bought a stake in Rio to block the takeover attempt, which was announced in November.
Newmont climbed 39 cents to $49.87. Barrick rose 73 cents to $48.46. Goldcorp added 69 cents to $35.29.
There is ``a Pavlovian reflex by day-traders that the BHP- Rio Tinto bid means maybe gold-mining companies will start swallowing up each other,'' said Jean-Marie Eveillard, who manages $35 billion at Arnhold and S. Bleichroeder Advisers LLC in New York, including the First Eagle Gold fund.
The Russell 2000 Index, a benchmark for companies with a median market value of $525 million, dropped 1.3 percent to 692.49. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.9 percent to 13,418.18. Based on its decline, the value of stocks decreased by $147.5 billion.
U.S. stocks tumbled the most since Feb. 27, 2007, yesterday after the Institute for Supply Management said service industries contracted at the fastest pace since 2001, reinforcing concern the economy is in a recession. The S&P 500 lost 3.2 percent yesterday and the Dow average declined 2.9 percent.