Stocks wilt after the surge
Wall Street retreats after the previous day's big runup. Bernanke's speech, profit reports and bank stress tests in focus.
NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday as investors retreated after pushing the major gauges to multi-month highs in the previous session.
After the close, Walt Disney (DIS, Fortune 500) reported weaker earnings that topped estimates on weaker revenue that missed estimates. Shares gained in extended-hours trading.
The Dow Jones industrial average (INDU) lost 16 points, or 0.2%. The S&P 500 (SPX) index lost 3 points, or 0.4%. The Nasdaq composite (COMP) fell 9 points, or 0.4%.
Stocks slumped as investors pulled back after a strong start to the week. On Monday, the Nasdaq ended at a six-month high and the Dow and S&P 500 ended at nearly 4-month highs.
Expectations that the worst is over for the economy have lifted stocks over the last two months, with the Nasdaq rising 8 straight weeks after falling to a 6-year low. The Dow and S&P 500 have risen for 7 of 8 weeks, after falling to more than 12-year lows.
The rally propelled the S&P 500 by 34% since March 9. After such a run, investors were a little uncertain of what to do next, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
"The momentum is still to the upside, but we've had a very big move up and so people are hesitating a little," he said.
Wednesday brings the private sector employment report from payroll services firm ADP, a precursor to the government's non-farm payrolls report due Friday. Employers are expected to have cut 643,000 jobs from their payrolls after cutting 742,000 in the prior month.
Bernanke: The economy will bottom and start to rebound later this year, but the recovery process will be slow and choppy, Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee. His comments essentially reiterated the statement from the last Fed policy meeting.
"The macroeconomic picture is still for recovery at the end of the year, something Bernanke talked about today," Rovelli said. "But if we don't see signs of that on the way in the economic news by the summer, you're going to see a big selloff."
Banks: At least 10 of the 19 big banks under review by the government may need to boost their capital, the Wall Street Journal reported. The government has been testing the banks' viability in case the economic slowdown accelerates in the coming months. The results of the "stress tests" are due late Thursday.
Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) have all been mentioned over the last few days as companies that will potentially need to raise more capital.
AIG (AIG, Fortune 500) is expected to report a quarterly loss when it releases results late Thursday. However, the company is not expected to need more money from the U.S. government, Reuters reported. Shares rallied 14% Tuesday.
In other financial news, Swiss bank UBS (UBS) reported a steep quarterly loss and said it expects loan losses to keep climbing in the months ahead.
Bank shares slipped, sending the KBW Bank (BKX) sector index down by 1.6%.
Company news: Dow component Kraft Foods (KFT, Fortune 500) reported higher quarterly earnings that topped estimates. But revenue fell as the stronger dollar hurt sales overseas. Kraft shares rallied 4%.
A variety of influential technology shares slipped, dragging on the Nasdaq, including Intel (INTC, Fortune 500), Dell (DELL, Fortune 500), Microsoft (MSFT, Fortune 500) and Applied Materials (AMAT, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers topped winners by eight to seven on volume of 1.53 billion shares. On the Nasdaq, decliners topped advancers five to four on volume of 2.57 billion shares.
Economy: The Institute for Supply Management's index on the services sector of the economy rose to 43.7 in April from 40.8 in March. Economists surveyed by Briefing.com thought it would rise to 42.2.
Any reading below 50 still indicates contraction, but the improvement suggests the pace of the slowdown is easing.
Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note up to 3.16% from 3.15% Monday. Treasury prices and yields move in opposite directions.
Borrowing costs improved. The 3-month Libor rate, a key bank lending rate, fell to 0.99% Tuesday, its lowest point on record. The overnight Libor rate held steady at 0.24%.
Other markets: In global trading, markets in Hong Kong and China ended higher, while markets in Japan, South Korea and Thailand were closed for national holidays. European markets ended mixed.
In currency trading, the dollar gained versus the euro and the yen.
U.S. light crude oil for June delivery fell 63 cents to settle at $53.84 a barrel on the New York Mercantile Exchange.
COMEX gold for June delivery settled up $2.10 to $904.30 an ounce. 
