NEW YORK (Reuters) - U.S. stocks fell on Wednesday as retailers' shares dropped sharply after a report that showed holiday shoppers were less enthusiastic than last year, with investors saying worries about the "fiscal cliff" may have kept them away from stores.
The Morgan Stanley retail index skidded 1.8 percent as holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year, according to data from MasterCard Advisors SpendingPulse. The SPDR S&P Retail Trust (XRT.P) slipped 1.5 percent to 61.24.
Janna Sampson, co-chief investment officer of OakBrook Investments in Lisle, Illinois, said worries about "fiscal cliff" tax hikes and spending cuts next year had likely kept shoppers from a last-minute rush to the stores.
"I think people held back this year, just worried about that bigger cut out of their paycheck next year and having to tighten their belt," she said. "If you've got to tighten your belts starting in January, people start worrying about overspending."
Department stores' stocks slid. Macy's (M.N) lost 3 percent to $36.41, while Saks SKS.N also fell 3 percent and traded at $10.30, near its session low. Online retailer Amazon.com (AMZN.O) fell 3.1 percent to $250.52.
President Barack Obama is due back in Washington early Thursday for a final effort to negotiate a deal with Congress to bridge a series of tax increases and government spending cuts set to begin next week. The president will leave Hawaii later on Wednesday, arriving in the capital early on Thursday.
The Dow Jones industrial average slipped 45.61 points, or 0.35 percent, to 13,093.47. The Standard & Poor's 500 Index .SPX shed 8.66 points, or 0.60 percent, to 1,418. The Nasdaq Composite Index dropped 23.10 points, or 0.77 percent, to 2,989.50.
Volume was light, with only 1.55 billion shares having traded at midday on the New York Stock Exchange, the Nasdaq and the NYSE MKT. Many senior traders were still on vacation during this holiday-shortened week and major European markets were closed for the day.
Still, Wednesday marked the third day of losses for the S&P 500 in its worst three-day decline since mid-November.
A Republican plan that failed to gain traction last week triggered the S&P 500's recent drop, highlighting the market's sensitivity to headlines centered around the budget talks.
"No one is hitting the panic button yet, and part of that lack of panic selling is the notion that the Street is getting comfortable with the likelihood of a temporary fix for the fiscal cliff - something that gets us over the date of January 1 in a way where it can be re-addressed," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
During the last five trading days of the year and the first two of next year, it's possible for a "Santa rally" to occur. Since 1928, the S&P 500 has averaged a gain of 1.8 percent during that period and risen 79 percent of the time, according to data from PrinceRidge.
The benchmark S&P 500 Index is up 12.8 percent for the year, and has recouped nearly all of the losses after the U.S. elections when the fiscal cliff concerns moved to the forefront. This is the best yearly gain for the S&P 500 since 2010.
Data showed U.S. single-family home prices rose in October, reinforcing the view that the domestic real estate market is improving, as the S&P/Case-Shiller composite index of 20 metropolitan areas gained 0.7 percent in October on a seasonally adjusted basis.
In the energy sector, China's Sinopec Group (600028.SS) and ConocoPhillips (COP.N) will research potentially vast reserves of shale gas in southwestern China over the next two years, state news agency Xinhua reported. Conoco's stock fell 0.8 percent to $57.99.
An outage at one of Amazon.com Inc's web service centers hit users of Netflix Inc's (NFLX.O) streaming video service on Christmas Eve and was not fully resolved until Christmas Day, a spokesman for the movie rental company said on Tuesday. Netflix rose 0.8 percent to $90.97.
Reporting by Edward Krudy; Editing by Jan Paschal