US stocks fell on Tuesday as a drop in energy companies' shares dragged indexes down after crude prices retreated and a slide in online retailers helped drive the Nasdaq lower.
Demand for stocks also fell after short-term Treasury note yields rose above long-term yields for the first time in five years, an event that may signal a slowdown in economic expansion.
Exxon Mobil Corp shares dropped 2.1 percent to $55.87 on the New York Stock Exchange, pushing the S&P 500 and the Dow to their biggest one-day drop in two months.
US crude oil for February delivery slipped 27 cents to settle at $58.16 a barrel on unseasonably mild US weather. Earlier, it fell more than $1 per barrel to a session low of $57.30.
An index of oil and natural gas shares fell 2.8 percent.
Shares of online retailers, including Overstock.com Inc, declined on reports that sales grew at a slower pace during the holiday season.
"Oil is getting hit here and that also hurts the oil stocks," said Michael Metz, chief investment strategist at Oppenheimer & Co. "That is disenchanting a number of short-term traders who didn't expect to get hit that badly by a drop in crude prices."
The Dow Jones industrial average was down 105.50 points, or 0.97 percent, to end at 10,777.77. The Standard & Poor's 500 Index was down 12.12 points, or 0.96 percent, at 1,256.54. The technology-laced Nasdaq Composite Index was down 22.53 points, or 1.00 percent, at 2,226.89.
The yield on the benchmark 10-year Treasury note fell below that of the two-year note on Tuesday for the first time since December 2000, in an inversion of the yield curve. This event, in the past, has indicated the start of a recession.
"So far it's a mild inversion and markets were expecting it," said Jason Schenker, a US economist at Wachovia Corp in Charlotte, North Carolina. "But if the inversion is to persist or deepen, then it may be interpreted as a real bear sign."
Overstock.com, the online close-out retailer, fell 7.4 percent, or $2.49, to $31.15 on Nasdaq after it said sales grew at a slower pace during the holiday season.
Shares of eBay Inc slipped 1.9 percent, or 86 cents, to $43.75 and were the biggest drag on the Nasdaq 100, while shares of Amazon.com Inc dropped 1.3 percent, or 66 cents, to $48.56.
The world's biggest retailer, Wal-Mart Stores Inc, said on Saturday that December sales were on track to meet its forecast, but its shares slid 1.3 percent, or 61 cents, to $47.73 on the NYSE, helping drag down the Dow.
Investors also may be taking profits in anticipation of a sell-off early next year, said Evan Olsen, head of equity trading at Stephens Inc.
"A lot of people have memories of last year when the market sold off in January and February. After November's run up, some people are taking some of the chips off the table, and don't want to get caught in another sell-off," he said.
The S&P 500's fall was cushioned by gains in shares of Apple Computer Inc, the maker of the popular iPod digital music player, one of the hottest-selling electronic items during this holiday shopping season. Apple's stock jumped 1.2 percent, or 88 cents, to $74.23 on Nasdaq.
Advancing stocks included Bristol-Meyers Squibb Co. The drug maker's shares rose 0.7 percent, or 15 cents, to $23.09 on the NYSE after the company won US approval for its Orencia rheumatoid arthritis treatment.
Volume was light because of the holidays, traders said. US stock markets were closed Monday in observance of Christmas.
Trading was moderate on the NYSE, with about 1.16 billion shares trading hands, below last year's average of 1.46 billion shares. On Nasdaq, about 1.28 billion shares traded hands, below last year's average of 1.81 billion shares.
Declining stocks outpaced gainers on the NYSE by a ratio of more than 2 to 1, while on Nasdaq, almost five stocks fell for every two that rose.
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