Wall Street drops after four-day rally as retailers, trade talks disappoint

By Sruthi Shankar

(Reuters) - U.S. stocks looked set to snap a four-day rally on Thursday as disappointing holiday-season results from Macy's hammered retail stocks and no clear signs of a resolution emerged from U.S.-Chinese trade talks.

Despite the S&P 500's 0.60 percent retreat, the benchmark index is holding near three-week highs and is 9.2 percent above the 20-month low it hit around Christmas, thanks to the recent rally that was driven by strong U.S. jobs data, easing fears of higher interest rates and rising hopes of a trade deal.

The trade optimism dampened after China said the three days of talks had established a "foundation" to resolve differences, but gave virtually no details on key issues at stake such as forced technology transfers, intellectual property rights, tariff barriers and cyber attacks.

The mood was further hit a 19 percent slump in shares of department store operator Macy's Inc after the retailer cut same-store sales forecast for the holiday quarter.

The report sparked a slide in retail stocks, with the S&P 500 retail index dropping 1.94 percent. Combined with a 1.9 percent fall in Amazon.com Inc, the consumer discretionary index slipped by 1.43 percent.

"Right now, the market is down given there is a lack of positive news and the fact that nothing clear came out (of trade talks) doesn't necessarily help," said Andre Bakhos, managing director at New Vines Capital LLC in Bernardsville, New Jersey.

"Investors are thinking if they want a risk-on ahead of earnings season."

Big tech stocks, which had led the recent surge, were down 0.76 percent. Apple Inc fell 1.3 percent, while Microsoft Corp dropped 1.4 percent.

At 10:07 a.m. EDT, the Dow Jones Industrial Average was down 106.15 points, or 0.44 percent, at 23,772.97, the S&P 500 was down 15.62 points, or 0.60 percent, at 2,569.34 and the Nasdaq Composite was down 59.18 points, or 0.85 percent, at 6,897.89.

Minutes from the Fed's most recent meeting, released on Wednesday, showed policymakers want to be patient about future interest rate increases. Investors will tune into Fed Chair Jerome Powell's speech before the Economic Club of Washington to see if the same tone continues.

Oil prices reversed from an eight-day winning streak, driving the energy index down 0.71 percent. Ten of the 11 major S&P sectors were lower, with only utilities index posting slim gains.

American Airlines Group Inc fell 9.7 percent after the No.1 U.S. airline cut its forecast for fourth-quarter growth in unit revenue, a closely watched performance metric. That weighed on other airlines as well.

The Dow Jones US Airlines index fell 4.64 percent.

Among the few bright spots, Bed Bath & Beyond Inc, gained 5.9 percent after the home furnishing company reported a better-than-expected quarterly profit and gave upbeat earnings forecast.

Declining issues outnumbered advancers for a 2.47-to-1 ratio on the NYSE and for a 2.34-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week highs and one new low, while the Nasdaq recorded 8 new highs and 7 new lows.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb Chakrabarty)