Stocks rocky after the rally
Rising oil prices, concerns about rate hikes, among the factors making investors cautious.
NEW YORK (CNNMoney.com) -- Stocks edged lower Monday after last week's big rally on worries about a fresh rise in oil prices and about how much longer the Federal Reserve will keep raising interest rates.
The Dow Jones industrial average (down 34.02 to 11,185.68, Charts) lost about 0.3 percent .The broader Standard & Poor's 500 (down 1.89 to 1,276.66, Charts) index and the tech-heavy Nasdaq composite (down 2.67 to 2,091.47, Charts) both lost around 0.1 percent.
Comments from a pair of Fed officials called into question when the Fed's rate-hiking campaign might end. Meanwhile, escalating Mideast tension added to the latest run-up in oil prices.
Treasury prices crept higher, pushing the yield on the 10-year note further below 5 percent, while the dollar slipped versus other major currencies.
Tuesday trade is likely to be influenced by the heavy spate of economic news due in the morning.
In particular, investors will be attuned to the June personal income and spending report, due at around 8:30 p.m. ET, and the report's core PCE deflator - a key measure the Federal Reserve is known to monitor for signs of inflation.
A read on construction spending is due around 10 a.m. ET. At the same time, the Institute for Supply Management releases its manufacturing index.
Stocks surged Friday after a weaker-than-expected read on gross domestic product growth in the second quarter sparked hopes that the Federal Reserve's interest-rate-hiking campaign is nearly done.
The gains helped give the Dow industrials its best week since May 2005.
After that run, stocks were a little vulnerable Monday, particularly amid comments from two Fed officials that suggested an end to interest-rate hikes may not happen as soon as had been hoped. Rising oil prices amid ongoing tension in the Mideast added to the pressure.
But the declines were modest, considering the extent of last week's rally, and investors now are looking for the next catalyst for stocks, said Art Hogan, chief market analyst at Jefferies & Co.
"You had the Dow seeing its best week in months on bad economic news," Hogan commented, referring to the GDP report. "That's not something that's going to sustain a rally."
In addition, "as we look out over the week, this is the lightest news day, so it's not unusual to have this kind of mild pullback after last week's run."
Harry Clark, CEO of Clark Capital Management, said that he thinks a more extensive sell-off is on the way in the coming month but that it's being postponed this week as investors wait for next week's Federal Reserve policy-setting meeting.
"I don't think you're going to see a strong direction one way or the other this week," Clark added. "The market has got to wait and see what the Fed does."
On the move
Scottish RE (down $12.01 to $3.99, Charts) plunged 75 percent in unusually active New York Stock Exchange trade after the reinsurer said its CEO quit and it expects a loss in the second quarter. It also forecast sluggish results for the second half.
The company also said it was suspending its dividend and has hired Goldman Sachs and Bear Stearns to help it look at "strategic alternatives."
A group of state attorneys general rejected a deal that the drugmaker had made with generic drugmaker Apotex that would have seen the competitor holding off on selling a cheaper version of Bristol's anti-clotting drug Plavix in exchange for a payment.
In other news, SanDisk, a maker of flash memory disks for cell phones and other products, is buying Israeli competitor Msystems, formerly M-Systems Flash Disk Pioneers, for around $1.55 billion in stock.
Market breadth was mixed. On the New York Stock Exchange, losers and winners were evenly split on volume of 1.61 billion shares. On the Nasdaq, advancers edged decliners on volume of 1.62 billion shares.
Eyes on the Fed
With the next Federal Reserve monetary policy meeting a little more than a week away, investors also focused on comments from several Fed officials Monday.
St. Louis Federal Reserve Bank President William Poole said early Monday morning that he's unsure whether the Fed should raise rates at next week's meeting. Poole, who is not a voting member of the FOMC, cited the conflict of slowing economic growth versus rising inflation.
Near midday, San Francisco Fed president Janet Yellen said the fed funds rate is near the right level, although inflation information of late has been disappointing. Yellen, who is a voting a member of the FOMC, also cautioned that it was important that the central bank be careful not to raise borrowing costs so much so that it hurts the economy.
The Fed has raised the fed funds rate, a short-term overnight bank lending rate target 17 straight times, from 1 percent to 5.25 percent. Market watchers are unsure as to whether another quarter-percentage-point rate hike is on tap for Aug. 8th.
Fed funds futures on the Chicago Board of Trade are now pricing in a 32 percent probability of a hike. Expectations briefly rose to 38 percent in the morning after Poole spoke.
The morning's stronger than expected read on manufacturing in the Chicago area also added to concerns that the Fed's two-year-old rate-hiking campaign is not yet done.
Chicago PMI (Purchasing Managers' Index) rose to 57.9 in July from 56.5 in June. Economists surveyed by Briefing.com thought it would fall to 56.
Treasury prices inched higher, with the yield on the benchmark 10-year note dipping to 4.98 percent from about 4.99 percent late Friday. Bond prices and yields move in opposite directions.
In currency trading, the dollar fell versus the yen and euro.
U.S. light crude oil for September delivery gained $1.16 to settle at $74.40 a barrel on the New York Mercantile Exchange after Israel's prime minister said that a cease-fire was not going to happen in the next few days between the nation and Hezbollah militants in Lebanon.
COMEX gold for December delivery fell $1.10 to $646.70 an ounce.