Stocks snapped a four-day winning streak Wednesday after a trio of weak economic reports tarnished the shine on recovery hopes.
The Dow Jones Industrial Average fell 65.59, or 0.8 percent, to close at 8,675.28. The S&P 500 lost 1.4 percent and the Nasdaq shed 0.6 percent.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, ticked up, closing at 31.02.
Wal-Mart led the few Dow gainers, climbing 1.9 percent, after Robert W. Baird started coverage on the discount giant and rival Target at "outperform," betting on an expected recovery in consumer spending.
"With traffic flowing to Wal-Mart stores and customers starting to migrate over to higher margin categories, we think the market is under-appreciating the durability of the company's improved fundamentals," analysts said.
Jobs were on investors' minds today after the ADP report showed U.S. private employers shed 532,000 jobs in May, fewer than the upwardly revised 545,000 jobs lost in April, but more than 520,000 expected.
The report is widely seen as a precursor to the government's May jobs report, due out on Friday. Economists expect to see another 525,000 jobs dropped from nonfarm payrolls, after a loss of 539,000 in the previous month. The unemployment rate is expected to tick up to 9.2 percent from 8.9 percent.
The 10 a.m. numbers were a mixed bag: The ISM services index improved to 44 in May from 43.7 in April, but just missed expectationsand was still below 50, indicating contraction. And factory orders rose 0.7 percent in April, an improvement over the downwardly revised 1.9-percent drop in March but also shy of expectations.
Fed Chairman Ben Bernanke warned that the rising U.S. debt is going to spike interest ratesand it's time to start reining in the deficit. He also said the economic erosion appears to be slowing, setting the stage for a recovery later this year.
Stocks eked out a gainon Tuesday following a sharp jump in pending-home sales.
But enthusiasm for the budding recovery in housing was tempered a 16-percent drop in mortgage applicationslast week, which was attributed to rising mortgage rates. The overnight average on a 30-year fixed mortgage was 5.36 percent, according to Bankrate.com.
Homebuilder stocks fell about 4 to 7 percent Wednesday. Toll Brothers dropped 6.6 percent after the company posted a slightly wider loss than expected as revenue was cut in half from the same period a year ago.
In fact, enthusiasm for the entire recovery was tempered.
Credit Suisse kept its projection for the Standard & Poor's 500 at 920 for the year, but took its equity rating down to "benchmark" from "overweight." The firm said surging Treasurys yields and a growing "scope for policy error" were dimming some of the allure for stocks.
"The recent rise in bond yields is worrisome—on our analysis, each 1 percent on ten-year yields takes 0.5 percent off GDP growth (and requires a 10 percent fall in house prices to leave affordability unchanged). We believe we are in an upward-sloping W-shaped recovery."
Financials continued to decline after a slew of stock offerings from the sector to raise money to pay back the government. In fact, $9 put options on the financial SPDR exchange-traded fund , essentially a bet that the gauge will fall, were the favorite play for options traders this morning. The ETF ended around $12.
Prudential Financial lost 2.9 percent after the insurer priced shares at $39 for a $1.25 billion share offering.
Meanwhile, the government's efforts to revive consumer and small-business lending got a boost in June.
General Motors ticked higher, ending at 62 cents, after CEOs from both GM and Chrysler testified before the Senate about the need for cutting dealerships.
Meanwhile, Chrysler's asset sale to Italian automaker Fiat could hit the skids as a U.S. court of appeals agreed to hear a challenge against the deal.
Dow oil components ExxonMobil and Chevron skidded as oil prices dropped more than $2, settling at $66.12 a barrel, after a report showed a surprise rise in crude stockpileslast week.
Alcoa , Boeing and other heavy industrials also declined.
Shares of Cell Therapeutics jumped after the company on Monday announced positive test results of pixantrone in treating non-Hodgins lymphoma. The company also amended and restated a modified Dutch auction for $118.9 million of oustanding convertible notes.
Still to Come:
THURSDAY: NY Fed Pres. Dudley speaks; Chain-store sales; ECB, BOE rate decisions; weekly jobless claims; Earnings from Ciena
FRIDAY: May jobs report; consumer credit
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