NEW YORK (CNN/Money) - U.S. stocks retreated Monday after reports from U.N. weapons inspectors failed to quiet fears about the potential for war with Iraq. Tuesday's market seemed primed for similar weakness, ahead of President Bush's annual State of the Union address.

In addition, Tuesday brings earnings reports from Dow components Merck, DuPont, Procter & Gamble and SBC Communications, as well as biotech Biogen, chipmaker Novellus and business software company Veritas Software.

Investors will also take in economic reports on consumer confidence, durable goods orders, and new home sales. And that's not to mention the two-day meeting of the Federal Reserve's policy-setting Federal Open Market Committee, set to begin Tuesday.

On Monday, the Dow Jones industrial average (down 141.45 to 7989.56, Charts) lost 1.7 percent, the S&P 500 index (down 13.92 to 847.48, Charts) lost 1.6 percent, while the Nasdaq composite (down 16.87 to 1325.27, Charts) lost almost 1.3 percent. With Monday's losses, the Nasdaq has now erased all of its gains for the year, joining the Dow and the S&P 500.

The Dow's decline continued to outpace that of the other indexes Monday, with the average closing below 8,000 for the first time since Oct. 14. Its loss Monday came on top of a 5 percent decline last week. The average is now down 4.2 percent for the year.

"The market has had war jitters and that, to a large extent, is responsible for a lot of the retreat over the last few weeks, but the decline comes with the backdrop of other things," said Michael Carty, principal at New Millennium Advisors. "You have worries about North Korea, Venezuela, the elections in Israel, you have companies saying that they won't provide guidance, like McDonald's and Coca-Cola. There are tremendous amounts of cash out there, but nobody wants to get in."

Investors took a fairly cold stance in response to the updates from chief U.N. weapons inspector Hans Blix and Atomic Energy Agency Director General Mohamed ElBaradei.

Blix delivered his team's 60-day progress report to the United Nations Security Council Monday morning. He said that although Iraq has cooperated with U.N. inspectors, it has failed to offer proof of its complete disarmament from weapons of mass destruction. The report indicated that inspectors would need more time to complete their task in Iraq, as did the report from ElBaradei.

The timeline question is one that has plagued markets for weeks, pushing stocks lower, as investors await news of whether the inspections deadline will be extended and whether the U.S. will go to war, even with very few global allies.

Uncertainty over whether inspectors will get an extension for their work has left investors skittish and has pressured both U.S. stock markets and the dollar. Although several key members of the Security Council, including France and Germany, have said inspectors should be given more time, U.S. officials have stated that the country is prepared to go to war with Iraq alone.

"You had a terrible day Friday with the market pricing in the reality of these events and you have a continuation of that reaction now. There are no surprises. It's pretty much across-the-board negativity," said Douglas Altabef, managing director at Matrix Asset Advisors.

Following the morning's reports, Bush administration officials said that Iraq was not in compliance and that the United Nations needed to reassess how it approaches the situation.

"The U.N. says go slow, the U.S. says the fact that Blix can't find anything is more of a comment on Blix than anything else," Matrix Asset Advisors' Altabef added. "The point is, Bush is not going to be deterred by these findings."

The Iraqi weather is also a factor in any military action, Altabef said, noting that if the Bush administration is going to act, it will need to do so soon, because after April, extremely hot weather would affect military action.

The United States' position will become clearer late Tuesday, when President Bush is scheduled to deliver his annual State of the Union address, a portion of which is expected to be dedicated to the government's views on Iraq.

The day's corporate news was scattered and mostly bearish. Two of the technology sector's titans, Microsoft (MSFT: down $0.68 to $49.17, Research, Estimates) Chairman Bill Gates and Hewlett-Packard (HPQ: down $0.38 to $18.37, Research, Estimates) CEO Carly Fiorina, both said over the weekend at the World Economic Forum in Davos, Switzerland, that they don't see demand for new information technology picking up any time soon.

Most major technology stocks, including Microsoft and Hewlett-Packard, declined. Microsoft, a member of the Dow industrials, was the Nasdaq's most active issue.

Although the period of reporting fourth-quarter earnings is coming to a close, a few big names are still expected to report results this week. Dow component American Express (AXP: down $0.28 to $33.42, Research, Estimates) reported a profit of 52 cents per share, more than twice what it earned a year earlier and a penny better than analysts were expecting. The company is the first of 11 Dow components due to report results this week.

Shares of Dow component Johnson & Johnson (JNJ: down $1.43 to $52.18, Research, Estimates) fell after the consumer products company said late Friday that it will take a charge in the fourth quarter after a court ordered it to reimburse Amgen (AMGN: down $1.46 to $50.78, Research, Estimates) for attorneys' fees and other costs associated with a licensing dispute.

On the Nasdaq, shares of i2 Technologies (ITWO: down $0.34 to $0.92, Research, Estimates) lost 27 percent in active trade after the business software maker said it would need to re-audit 2001 and 2002 results after the Securities and Exchange Commission began an informal inquiry.

Gold climbed $1 to $369.40 an ounce, after having risen above $370 for the first time in about six years earlier in the session.

Market breadth was negative, with losers beating gainers both on the New York Stock Exchange, by more than 3 to 1, and on the Nasdaq, by more than 11 to 5. Some 1.42 billion shares changed hands on the NYSE and 1.41 billion shares traded on the Nasdaq.

Bond prices fell, pushing the yield on the 10-year note up to 3.95 percent from 3.93 percent late Friday. Bond prices and yields move in opposite directions.

The dollar continued to lose ground against the euro, but rose modestly against the yen.

The war rumblings fueled buying in oil futures overnight, but light crude retreated in New York after the day's announcements, with its price falling 99 cents to $32.29 a barrel.