Stocks struggled Tuesday as retail stocks weakened following a downgrade on the sector.
Stocks had started the day higher, rebounding off of their worst week in a couple of months, amid encouraging news for the financial and tech sectors.
A report on the services sector added to the gloomy economic picture: The Institute for Supply Management reports its non-manufacturing index dropped to 53.8 in June from 55.4 in May, but still remained above 50, which indicates expansion in the sector.
Citigroup slashed its forecast for a slew of retailers, including Home Depot , JCPenney, Macy's, Walmart and Target, citing increased risks to the second half consumer-spending recovery. However, it raised its rating on Family Dollar, saying it's a good long-term defensive play.
"The consumer went on a shopping binge in 1Q10 and the subsequent hangover has set in.," Citi analysts said in their research note. "A challenging macro environment, lack of fashion, and difficult comparisons on the horizon will make this consumer hangover tough to kick."
Financials advanced, with Bank of America and Wells Fargo up more than 2 percent, after encouraging news out of the global banking sector.
French banks are expected to pass their stress tests, Bank of France head and European Central Bank Governing Council member Christian Noyer said. This came after similar remarks from French Economy Minister Christine Lagarde.
And EU Economy Commissioner Olli Rehn said should member nations exhaust their resources while dealing with problem banks, there is an EU back-up plan they can turn to as a "second line of defense."
And the IPO of China's third largest bank, the Agricultural Bank of China, was met with strong demand — 20 times oversubscribed — with many investors subscribing for double the number of shares they had bid in the pre-marketing process. It is expected to top $22 billion, which would make it the largest IPO ever.
The Reserve Bank of Australia gave an upbeat assessment of the global economy along with its decision to keep interest rates on hold for a second month. The economic view sparked short covering for higher-risk currencies like the euro, and helped push the dollar broadly lower. An early rebound in overseas stock markets and that upbeat economic assessment from Australia are among the factors helping oil reverse early losses.
Goldman Sachs shares rose after JPMorgan upgraded its rating on the stock to "overweight," saying Goldman is the best in its class at managing risk.
Chip stocks gave techs a boost, with Intel up nearly 2 percent and Hewlett-Packard up more than 2 percent, after a report showed global chip sales jumped 48 percent in May to $24.7 billion.
BP shares rose about 5 percent after RBS upgraded its rating on the stock to "buy" from "hold."
Barclays upgraded the overall oil-services sector, saying the outlook for the sector, and deep-water drilling is good, and the 26-percent drop the sector has seen recently more than accounts for the Gulf oil spill. It also upgraded a few individual stocks within the sector, including Halliburton, FMC Technologies, and Pride International.
Walgreen shares rose after the drugstore chain reported its sales rose 8.4 percent in June.
TUESDAY: World Cup semi-finals start
WEDNESDAY: Weekly mortgage apps; Challenger job cuts; Fed's Kocherlakota, Lacker speak; Earnings from Family Dollar
THURSDAY: June chain-store sales; weekly jobless claims; consumer credit
FRIDAY: Wholesale trade