U.S. stocks closed lower on Monday, the first day of trade for August, as investors weighed mostly lackluster economic data and a renewed decline in oil, amid overseas news. ( Tweet This )
"The growth picture right now is not all that encouraging," said John Caruso, senior market strategist at RJO Futures. "I think it's the data, that's the lion share of it."
"The ISM number this morning was rather alarming," he said. "That certainly raises some doubts that we are seeing expansions that economists are forecasting."
Apple fell about 2.4 percent to $118 a share, below its 200-day moving average and in correction territory.
Sharp declines in oil weighed heavily on stocks as U.S. and Chinese economic data indicated slower growth.
Crude oil settled down $1.95, or 4.14 percent, at $45.17 a barrel. Brent fell below $50 a barrel for the first time since Jan. 30.
"You have weakness in the energy market.... The one positive out of today's market is the Dow Transports," said Robert Pavlik, chief market strategist at Boston Private Wealth. "It's August, it's summer, so there's sort of no reason to do any buying or selling, but if any kind of news like China happens or momentum to the downside, then there's less support for the market."
The Dow Jones industrial average closed about 90 points lower after falling as much as 193 points, while the S&P 500 and the Nasdaq Composite were about a quarter of a percent lower. The Dow transports closed 0.3 percent higher as airlines advanced.
The major averages halved gains but remained lower in late afternoon trade as the majority of stocks declined.
"The problem is if you only have a few handful of stocks leading the market, if they don't make it the market's in trouble," said Bruce Bittles, chief investment strategist at RW Baird.
He expects the major averages to remain in a trading range until they're boosted by a positive catalyst, such as an interest rate hike sometime before the end of the year.
"This is going to be an extremely busy week. We still have a third of S&P (names) to report," said Art Hogan, chief market strategist at Wunderlich Securities. "There's also going to be a plethora of economic activity."
In particular, he was watching July auto sales, which came out throughout the day. The sector has been an area of strength for the economy, he said.
The report was encouraging, posting sales at a seasonally adjusted annual rate above 17 million.
"Regardless of what's driving it, the auto sector is certainly a bright spot for the U.S. economy," said Peter Boockvar, chief market strategist at The Lindsey Group.
Bond traders, however, focused on the disappointing ISM manufacturing data. The report missed expectations, coming in at 52.7 versus the 53.5 forecast. The data was scheduled to be released at 10:00 a.m. but reports surfaced before the opening bell.
The 10-year Treasury yield fell to 2.15 percent, while the 2-year yield held near 0.67 percent. The 30-year yield traded near 2.86 percent. The 10-year yield and 30-year yield hit their lowest levels since June 1.
"The long end is responding to lower inflation expectations, which we are seeing confirmed in the TIPS market as well," said Brandon Swensen, co-head of fixed income at RBC Global Asset Management (U.S.). "Today's weaker ISM on top of continued weakness in commodities is continuing the curve flattening momentum that we have been seeing recently."
Yields have no major impetus to move significantly higher because we have "sluggish economic growth that's going to persist for years upon years beyond the current economic cycle," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. He noted fairly light trading volume.
The U.S. dollar held a touch higher, with the euro below $1.09.
Personal income increased 0.4 percent in June, while personal consumption increased 0.2 percent, its smallest gain in four months.
"While spending came in a little lower, the trend remains higher," said Peter Cardillo, chief market economist at Rockwell Global Capital. "That puts us closer to a rate hike in September."
Construction spending rose 0.1 percent, the smallest gain since January.
The economic reports come ahead of Friday's nonfarm payrolls report that investors will weigh carefully for the likelihood of an interest rate hike in September.