Stocks retreated from 13-month highs after a lackluster reading on consumer confidence and a report showing slower economic growth sapped the market's optimism.
Stocks retreated from 13-month highs after a mixed reading of consumer confidence and a report showing slower economic growth sapped the market's optimism.
Major indexes fell less than 0.5 percent Tuesday, as sharp declines in financial and industrial stocks were tempered by gains in health care companies.
Stocks were off their lows of the day after the Federal Reserve released minutes from its latest rate-setting meeting, during which it pledged to keep rates low for the foreseeable future and said inflation remained at bay. The Fed raised its expectations for economic growth during the second half of this year, but said unemployment will remain high.
Stocks had been falling prior to the report after the government revised its calculation of third-quarter economic growth down to 2.8 percent from its original estimate of 3.5 percent, the latest sign that the recovery is likely to be slow and bumpy.
Meanwhile, the Conference Board said its Consumer Confidence Index rose to 49.5 in November from a revised reading of 48.7 in October. While better than expected, the report shows that consumers remain gloomy heading into the holiday season. A reading above 90 means the economy is on solid footing.
"It's all about the daily data," said Howard Ward, chief investment officer of the GAMCO Growth Fund. "Today's was uninspiring."
Ward said a warning from China's central bank that commercial banks there should control their lending also weighed on the market, financial stocks in particular. The comments raised concerns that the government could take more measures to reduce liquidity in the system in the coming months, which would be an impediment to growth in one of the biggest trade partners of the U.S.
The decline in stocks came after a big rally on Monday carried the Dow Jones industrials up 133 points to their highest level in just over a year. A weakening dollar and an upbeat report on housing lured investors back into stocks after a three-day losing streak. But the dollar bounced back on Tuesday, hurting stock market sentiment.
In early afternoon trading, the Dow fell 29.78, or 0.3 percent, to 10,421.17. The Standard & Poor's 500 index lost 1.99, or 0.2 percent, to 1,104.25, while the Nasdaq composite index fell 12.26, or 0.6 percent, to 2,163.75.
The dollar's weakness has been a big driver behind higher stock prices this year. Investors have been taking advantage of record-low interest rates to invest in assets other than cash that can earn them better returns.
As the end of the year approaches, however, safe-haven assets like the dollar and Treasurys have become more appealing as investors seek to safeguard some of the big gains in the stock market this year. At the same time, some investors who missed out on the eight-month rally that began in March are looking for opportunities to get in, creating a back-and-forth pattern that has become familiar in recent weeks.
"There are people that have done quite well and maybe they want to protect themselves, but fear and greed still drive the market and I think there are plenty of people out there that want in on the action," said William Rutherford, president of Rutherford Investment Management in Portland, Ore.
Investors have been battling mixed signals on the economy in recent months. Areas like housing have shown modest improvements, but others like consumer confidence and employment are lagging. That has investors worried that their bets on an economic recovery over the past eight months may have been overdone. The Standard & Poor's 500 index is up 63.5 percent since early March.
A report earlier Tuesday showing the fourth straight month of improving house prices in September did little to shore up investor confidence. The Standard & Poor's/Case-Shiller home price index rose 0.3 percent in September from the previous month.
A slightly stronger dollar put pressure on the shares of commodities and materials producing companies. When the dollar rises, it makes commodities and commodities-related products more expensive for buyers overseas.
The ICE Futures US dollar index, a widely used measure of the dollar against other currencies, rose 0.1 percent. Oil prices fell $1.53 to $76.03 a barrel on the New York Mercantile Exchange. Gold prices rose slightly.
Among health care stocks, Medtronic Inc. jumped more than 5 percent after the medical device maker reported a surprising 59 percent increase in its quarterly profit and raised its full-year outlook due in part to strong sales of its implantable heart devices. Shares gained $2.04 to $42.35.
Shares of rival St. Jude Medical Inc. rose $1.74, or 5 percent, to $36.75, while Boston Scientific rose 32 cents, or 3.9 percent, to $8.48.
Bond prices rose after a strong auction of five-year notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.36 percent late Monday. The yield on the five-month note dropped to 2.13 percent from 2.18 percent.
About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to a relatively low 543.2 million shares, compared with 545.7 million at the same time on Monday.
Analysts expect trading to be choppy this week amid light trading volume heading into the Thanksgiving holiday.
In other trading, the Russell 2000 index of smaller companies fell 5.79, or 1.0 percent, to 589.02.
Overseas, China's Shanghai index fell 3.5 percent, its biggest decline in three months, after the warning from the central bank. Japan's Nikkei stock average fell 1 percent. In Europe, Britain's FTSE 100 fell 0.1 percent, while Germany's DAX index and France's CAC-40 each slipped 0.2 percent.
