Stocks slumped on Monday as technology stocks unraveled, and investors worried that continuing woes over the euro zone debt crisis could put a damper on the economic recovery moved out of riskier assets.
The Dow Jones Industrial Average fell 47.38 points, or 0.4 percent, to close at 12,548.37, the lowest close since April 25.
Microsoft led the blue-chip index lower, while AmericanExpress gained.
TheS&P 500 fell 8.30 points, or 0.6 percent, to close at 1,329.47, while the tech-heavy Nasdaq fell 46.16 points, or 1.6 percent to close at 2,782.31. It was the lowest close since April 19 for both indexes.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to 18.
The reason for Monday's drop in tech stocks wasn't clear, except that the sector is considered among the riskier in the market, and investors have been in a "risk off" mode since silver prices began tumbling more than two weeks ago. Health care, and utilities—traditionally so-called defensive stocks—closing slightly higher on Monday, confirming the "risk off" trend.
"It's a continuation of what we were seeing," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
Detrick also notes that stock index futures and options will expire at the end of the week, and "expiration week," as it's known, hasn't been kind to stocks the last two years. While not likely a factor today, expiration week dynamics could cause pressure stocks later in the week, he said.
In 2009, the S&P 500 fell 4.99 percent during May expiration week, and in 2010, the market fell 4.23 percent, Detrick wrote in a research note.
Monday's drop in consumer discretionary stocks—down more than 1 percent for the session—will likely be temporary, says Doug Coté, chief market strategist at ING Investment Management, who expects the sector will benefit from monetary tightening by the Federal Reserve.
The sector is likely to gain as energy prices fall, and inflation concerns are subdued by the Fed, Coté said. The sector is already gaining momentum from increased consumer spending, evident in record levels of retail sales, he said.
"You want to be in consumer discretionary," Coté said.
Euro zone finance ministers met todayto discuss plans to bail out Portugal from a debt crisis and to discuss whether to extend funding for Greece. But the meeting was clouded by the arrest of International Monetary Fund chief Dominique Strauss-Kahn.
The dollar fell against a basket of currenciesdominated by the euro , which gained despite the IMF chief's arrest on sexual assault charges. Gold prices fell slightly, falling to $1,490.40, while silver fell 2.5 percent to $34.13.
The euro zone's troubles pressured oil pricesas well. U.S. light, sweet crude fell 2.3 percent to settle at $97.37 a barrel, while in London, Brentcrude fell nearly 1 percent to $112.73.
In tech news, Yahoo led the sector lower after the company and Alibaba said they were in discussions to settle issues surrounding Alibaba’s spinoff of its Alipay online payment business.
E-commerce companies including Amazon.com and Ebay weighed on the Nasdaq, with both companies slipping more than 3 percent each.
However, Intel traded higher as options traders aggressively bought the July 25 calls, suggesting a bullish bet on the tech giant. In addition, Intel's chipmaker segment is reportedly in talks with several telephone companies, according to J.J. Kinahan, chief derivatives strategist at TD Ameritrade.
On the M&A front, NYSE Euronext fell more than 12 percent, to the bottom of the S&P 500, following news that Nasdaq OMX Group and IntercontinentalExchange were withdrawing their bid for the exchange after it became clear the U.S. Department of Justice wouldn't approve the deal.
And DuPont rose after the chemical manufacturer won won its takeover battlefor Danisco. The acquisition is part of DuPont's push into food technology.
Joy Global gained after the drilling manufacturer said it would buy LeTourneau Technologies, an equipment manufacturing unit owned by Rowan . The acquisition will give Joy Global access to the oil and gas drilling market.
And SanDisk jumped after the chipmaker announced it would acquire enterprise solid-state drive technology firm Pliant Technology for $327 million.
Earnings news will be dominated by retailers this week. The releases began before the bell when Lowe's posted disappointing profit results, blaming cold weather and rain for keeping shoppers away. Shares of rival Home Depot, which reports earnings Tuesday before the bell, fell slightly.
JCPenney fell after the clothing retailer delivered better-than-expected results.
Urban Outfitters releases earnings results after the market closes, while Wal-Mart and TJX are also slated to deliver earnings before the market opens on Tuesday.
The airlines got a boost from JPMorgan, which said the sector will benefit from falling jet fuel prices. The brokerage upgraded AMR and JetBlue to "overweight" from "neutral." AMR's price target was raised to $9.50 a share from $8.50 and JetBlue's was raised to $8 from $7.
And Ford gained after Citigroup upgraded the automaker to "buy," citing valuation. Meanwhile, the brokerage cut auto supplier Magna International to "hold" from "buy," citing its current preference for automakers.
Volume on the consolidated tape of the New York Stock Exchange was 3.3 billion shares, while 907 million changed hands on the NYSE floor.
Among the day's economic news, the NAHB/Wells Fargo Housing Market indexremained steady at 16, according to the National Association of Home Builders. More news on housing comes later this week when data on housing starts are released on Tuesday and on existing homes sales are released on Wednesday.
TheEmpire State Manufacturing Indexfell to 11.88 in May from 21.7 in April, the lowest level since December 2010, the New York Federal Reserve reported. The prices paid component of the index, meanwhile, rose sharply to 69.89 from 57.69, the highest since July 2008.
And the $14.3 trillion debt limitwas expected to be reached on Monday. The White House and congressional Republicans have not been able to strike a deal over the deficit and the debt ceiling. President Barack Obama has warned that that a failure to raise the debt limit could lead to a worse financial crisis than the one in 2008-09, Reuters reported.
Bonds traded flat on Monday, as the U.S. 10-year Treasury note gained 10/32 points today to 99 25/32, yielding 3.15 percent.
In Europe,shares closed lowerled by banks exposed to euro zone debt.
On Tap This Week:
MONDAY: 13-F filings due.
TUESDAY: Housing starts, industrial production, JPMorgan shareholder meeting, Shell Oil annual meeting; earnings from Home Depot, Wal-Mart, TJX and Dell.
WEDNESDAY: Weekly mortgage applications, oil inventories, FOMC minutes, Fed's Bullard speaks; earnings from Abercrombie & Fitch, BJ's, Target and HP.
THURSDAY: Weekly jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, money supply, Halliburton shareholder meeting, Intel shareholder meeting, McDonald's shareholder meeting, Sallie Mae annual meeting, LinkedIn IPO; earnings from GameStop, Sears and Gap.
FRIDAY: JCPenney shareholder meeting, Macy's shareholder meeting, Time Warner shareholder meeting; earnings from Ann Taylor
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