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Stocks Bounce Back After Monday's Selloff

Stocks bounced back Tuesday after a sharp selloff Monday but gains were modest after a disappointing housing report.

Housing starts fell 1 percentin July after an upwardly-revised 6.5-percent jump in June, but fell well short of expectations.

While housing starts are off their lows from last year, the gains we've seen recently have "in all likelihood been a rebound from unsustainably weak results rather than the start of anything resembling a sustained “v-shaped” recovery," said Joshua Shapiro, chief economist at MFR Inc.

"Gains from here on will probably be much more difficult to achieve, as poor labor market conditions, extremely tight credit, overly leveraged household balance sheets, and declining home prices all exert downside pressures."

Meanwhile, a gauge of inflation fell more than expected: Producer prices dropped by 0.9 percent last month, compared with a 1.8-percent gain in June. Economists had expected a 0.3-percent drop.

The market has been buzzing with talk of a correction after the runup since the March lows, and that finally started to materializeMonday as stocks tumbled 2 percent. The question is, if this is in fact the start of a much larger correction, which some say could go to 10 percent, or if it was a one-day event. Based on activity in overseas markets and U.S. stock index futures, Monday's drop may be a one-day wonder, with all signs pointing to a rebound at the open.

Monday saw the biggest one-day drop for the Nasdaq since June 22, with the Dow and S&P 500 seeing their biggest single session losses since July 2.

Target reported its eighth consecutive drop in quarterly profit but beat expectations.

And TJX , which operates TJ Maxx, Marshalls and Home Goods stores, reported its profit rose 31 percent as discount stores continued to lure shoppers. The results beat by a penny.

Dow component Hewlett-Packard and chip maker Analog Devices report after the bell.

On Monday, Dow component Home Depot reported its profit fell but beat analysts’ expectations.

Shares of Home Depot rival Lowe's, plunged 10 percent Monday after the home-improvement retailer reported its profit plunged 19 percent, much worse than estimates.

Energy markets are also drawing some attention after crude dipped to its lowest level in two weeks Monday. The rebound in stocks is also lifting oil, ahead of the two weekly inventory reports from the API this afternoon and from the EIA tomorrow morning.

- Peter Schacknow contributed to this report.

On Tap for Next Week:

TUESDAY: Earnings from HP and Analog Devices after the bell
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; Earnings from Deere, Limited
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed survey; Earnings from Gamestop, Hormel, and Sears
FRIDAY: Existing-home sales; Earnings from JM Smucker

Send comments to cindy.perman@nbcuni.com.