Dow falls more than 150 points as rally to record highs takes a breather

ETF flows show more money pouring into stock market from sidelines
ETF flows show more money pouring into stock market from sidelines

U.S. stocks fell on Tuesday as the market's recent rally cooled off amid a sharp decline in drug store shares and disappointing economic data.

The Dow Jones Industrial Average dropped 167.09 points, or 0.6%, to close at 29,783.35. The S&P 500 dipped 0.5% to 3,609.53, while the Nasdaq Composite fell 0.2% to 11,899.34.

Shares of pharmacy owner CVS Health and Dow-member Walgreens Boots Alliance dropped after Amazon launched a pharmacy business, which allows free delivery of medications for Prime members. Walgreens shares dropped 9.6% and CVS lost 8.6%. Amazon shares gained 0.2%.

Home Depot added to the decline, falling 2.5% despite a third-quarter earnings beat. Its sales also surged about 24% compared with a year ago as pandemic home improvement buying continued. Walmart dipped as well, closing 2% lower even after posting better-than-expected results for the previous quarter.

Sentiment also took a hit after data showed retail sales increased less than expected in October. Retail sales rose 0.3% last month, versus a 0.5% gain expected by economists polled by Dow Jones.

Tesla shares bucked the market's negative trend, jumping 8.2% after S&P Dow Jones Indices said the electric car maker would join the S&P 500 index, effective Dec. 21. It was a long anticipated move for the surging stock. Before Monday, the shares had already more than quadrupled this year.

Tesla is finally joining the S&P 500 — Here's what six experts say they're watching
Tesla is finally joining the S&P 500 — Here's what six experts say they're watching

Tuesday's moves came after a banner day on Wall Street, with the Dow and S&P 500 posting record closing highs.

"It's natural for the market to take a breather, and the slightly disappointing read on the retail sales front is facilitating that," said Chris Larkin, managing director of trading and investment product at E-Trade. "Without stimulus checks coming in, there's a bit of uncertainty in this sector in the short term."

On Monday, the Dow and S&P 500 jumped after Moderna released trial data showing its coronavirus vaccine was more than 94% effective, further raising expectations of a sharp economic recovery.

That marked the second positive announcement related to a coronavirus vaccine in a week. Pfizer and BioNTech said Nov. 9 that their Covid-19 vaccine candidate was more than 90% effective among participants in a late-stage trial.

Value stocks led the advance on Monday, building on their strong gains from last week. The iShares Russell 1000 Value ETF (IWD) jumped 1.9%, while its growth counterpart closed higher by just 0.5%. Value names lagged growth on Tuesday, however, as IWD fell 0.4% and the iShares Russell 1000 Growth ETF (IWF) closed 0.2% lower.

"Value and smaller companies typically have more leverage to economic recoveries so a vaccine that would remove the weight of COVID-19 off the economy is a distinct positive," wrote Bill Stone, chief investment officer at Stone Investment Partners. "Time will tell if this reversal in trends proves durable or starts "makin' the tears rain down like a monsoon" for value proponents like the many recent false starts."

The recent outperformance in value stocks comes even as the number of coronavirus cases continues to increase, dampening the country's near-term economic outlook.

A survey conducted by Bank of America found that fund managers gave gotten too optimistic about the prospects of a coronavirus vaccine, leading the bank's top strategists to suggest investors sell the news on those developments.

— CNBC's Yun Li contributed reporting.

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.