Stocks saw moderate weakness during trading on Monday, giving back some ground after ending last Friday's trading sharply higher. The pullback came on the heels of the release of a disappointing report on U.S. retail sales.
The major averages ended the day in negative territory but well off their lows for the session. The Dow fell 49.88 points or 0.4 percent to 12,727.21, the Nasdaq slid 11.53 points or 0.4 percent to 2,896.94 and the S&P 500 edged down 3.14 points or 0.2 percent to 1,353.64.
Much of the weakness on Wall Street stemmed from continued concerns about the economic outlook following the release of a report from the Commerce Department showing an unexpected drop in retail sales in the month of June.
The report showed that retail sales fell by 0.5 percent in June following a 0.2 percent decrease in May. The drop surprised economists, who had expected sales to edge up by 0.2 percent. With the unexpected decrease, retail sales fell for the third consecutive month.
Excluding a drop in sales by motor vehicle and parts dealers, retail sales still fell by 0.4 percent in June, matching the decrease seen in the previous month.
Jennifer Lee, senior economist at BMO Capital Markets, called the continued drop in sales "an unexpected but not shocking-knock-me-off-my-chair move, considering the headwinds consumers are facing these days."
Meanwhile, selling pressure was somewhat subdued amid the release of a separate report from the New York Federal Reserve showing stronger than expected growth in regional manufacturing activity.
The New York Fed said its general business conditions index rose to 7.4 in July from 2.3 in June, with a positive reading indicating growth in the manufacturing sector. Economists had expected the index to show a more modest increase to a reading of 4.5.
A positive reaction to quarterly results from Citigroup (C) also helped to limit the downside for the markets, with the financial giant advancing by 0.6 percent.
Citigroup reported second quarter earnings that fell year-over-year but still came in above analyst estimates. At the same time, revenue for quarter dropped by slightly more than anticipated.
Sector News
Networking stocks saw considerable weakness throughout the trading session, resulting in a 1.9 percent loss by the NYSE Arca Networking Index. With the loss, the index ended the session at its worst closing level in three years.
Alcatel-Lucent (ALU), Ciena (CIEN) and Polycom (PLCM) turned in some of the networking sector's worst performances.
Trucking stocks also posted steep losses on the day, dragging the Dow Jones Trucking Index down by 1.8 percent. YRC Worldwide (YRCW) helped to lead the trucking sector lower, tumbling by 7.1 percent.
Notable weakness was also visible among semiconductor stocks, as reflected by the 1.1 percent loss posted by the Philadelphia Semiconductor Index. Steel, electronic storage and defense stocks also came under pressure on the day.
Meanwhile, biotechnology stocks showed a strong move to the upside over the course of the session, driving the NYSE Arca Biotechnology Index up by 1.2 percent. Nektar Therapeutics (NKTR) and Dendreon (DNDN) posted standout gains.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Monday, with the Japanese markets closed for a public holiday. While Hong Kong's Hang Seng Index edged up by 0.2 percent, China's Shanghai Composite Index tumbled by 1.7 percent.
The major European markets also ended the day mixed, closing roughly flat. The German DAX Index crept up by 0.1 percent, while the U.K.'s FTSE 100 Index dipped by 0.1 percent and the French CAC 40 Index closed just below the unchanged line.
In the bond market, treasuries extended a recent upward move on the heels of the disappointing retail sales data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.5 basis points to a new record closing low of 1.464 percent.
Looking Ahead
Trading on Tuesday could be impacted by reaction to remarks by Federal Reserve Chairman Ben Bernanke, who is due to testify before the Senate Banking Committee. Bernanke's comments are likely to be closely scrutinized for indications regarding the likelihood of further stimulus.
Reports on consumer price inflation, industrial production, and homebuilder confidence may also attract some attention but are likely to be overshadowed by Bernanke's testimony.
On the earnings front, Goldman Sachs (GS), Coca-Cola (KO), Johnson & Johnson (JNJ), and Mattel (MAT) are among the companies due to release their quarterly results before the start of trading on Tuesday.
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