U.S. Stocks Drop on Retail, Home Price Concern; Target Falls

U.S. stocks dropped for the first time in four days on concern slower sales at Target Corp. and the biggest drop in home prices in at least six years signal consumer spending may weaken more than expected.

Macy's Inc., Circuit City Stores Inc. and Dillard's Inc. led declines by 30 of 31 retailers in the Standard & Poor's 500 Index. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the biggest U.S. banks, retreated after billionaire investor Warren Buffett said he declined to invest in financial firms that approached him recently about buying stakes.

The S&P 500 decreased 5.32, or 0.4 percent, to 1,491.13 at 12:20 p.m. in New York. The Dow Jones Industrial Average lost 36.9, or 0.3 percent, to 13,512.43. The Nasdaq Composite Index slipped 8.03, or 0.3 percent, to 2,705.47. More than two stocks fell for every one that rose on the New York Stock Exchange. Asian benchmarks climbed and most European markets were closed.

The consumer is feeling some pain, said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $23 billion in Lake Oswego, Oregon. Investors are going to be looking for a spillover effect.

Target's forecast that December sales at stores open at least a year may drop 1 percent added to evidence that chain stores will post the weakest holiday sales growth in five years. Retailers in the S&P 500 have tumbled 18 percent as a group this year as home values decline and energy prices climb. The S&P/Case-Shiller index today showed property values slid 6.1 percent in October.

The S&P 500 is headed for its first quarterly decline since the three months ended June 2006. Today's drop limited the benchmark's advance to 5.1 percent in 2007, while the Dow average has gained 8.4 percent this year and the Nasdaq is up 12 percent.

Target Tumbles

Target fell $1.36 to $51.11. Target had earlier predicted a gain of as much as 5 percent for stores open at least a year. It issued its lowered forecast, which ranged from a possible gain of 1 percent to a drop of 1 percent, after financial markets closed on Dec. 24.

Macy's, the owner of the namesake department store chain and Bloomingdale's, lost $1.48, or 5.5 percent, to a three-year low of $25.53.

Circuit City, the second-largest consumer electronics chain, tumbled 24 cents to a four-year low of $4.71. Dillard's, the retailer that operates mostly in the South, slid $1.15 to $19.15.

Wal-Mart Stores Inc., the world's biggest retailer, slumped 55 cents to $48.19. The National Retail Federation has forecast a 4 percent increase in total sales for the holidays, the smallest gain since 2002.

`Consumer-Led Recession'

We're definitely heading into a consumer-led recession, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based consulting and investment banking firm for retailers. Retail stocks have been killed this year and rightfully so, but the worst is yet to come.

Property values fell 6.1 percent in October from the previous year, more than economists had forecast, according to the S&P/Case-Shiller home-price index. The decline was the biggest since the group started keeping year-over-year records in 2001. The index has fallen every month this year.

Citigroup slid 47 cents to $30.51. Bank of America lost 33 cents to $41.95. JPMorgan slumped 21 cents to $44.62. Financial firms in the S&P 500, down almost 20 percent this year, fell 1 percent today.

Buffett Not `Salivating'

We've seen some deals as you can imagine in this period, Buffett said today in an interview on CNBC. So far, we have not seen a deal that causes me to start salivating. He didn't say which firms approached him.

The biggest U.S. residential real-estate slump in 16 years has rendered mortgages unaffordable for many homeowners, leading to an increase in foreclosures. The world's biggest banks and brokerage firms have written down the value of their assets, including mortgage-backed bonds, by at least $96 billion.

Berkshire Hathaway Inc., Buffett's holding company, added $1,920 to $139,900 after saying it will pay $4.5 billion to take control of closely held Marmon Holdings Inc.

Hess Corp. led energy companies higher as crude oil climbed for a third straight day to a one-month high of $95.92 a barrel in New York. The fifth-largest U.S. oil company rose $1.98 to a record $104.36. Exxon Mobil Corp., the biggest U.S. oil company, rose 96 cents to $94.96.

U.S. stocks rose Dec. 24, sending benchmark indexes to the highest levels in two weeks, as falling interest rates and a $33.3 billion agreement to restructure Canadian commercial debt improved the outlook for credit markets.

Source - Bloomberg