Investing.com - After three days that produced big gains, stocks pulled back on Tuesday.
The S&P 500 fell 0.8%. The Dow dropped 0.7% and the Nasdaq Composite slid 0.7%.
The easy explanation - also a likely one - is that investors decided to cash in recent gains to see what will happen next. The risks to the market haven't gone away, and investors showed their concerns with a wave of selling in the last 15 minutes of trading.
In addition, interest rates moved lower, a signal of demand for lower-risk assets. The 10-Year Treasury yield fell to 1.552% from Monday's 1.598%. The 10-2 Year Treasury Yield Spread narrowed to 4.32 basis points from Monday's 5.58 basis points.
The spread actually went negative last week, seen by many investors as a signal a recession might be ahead. That caused markets to slump badly on Wednesday, with the Dow off 800 points. President Donald Trump suggested the administration might cut rates on payroll taxes to support the economy.
While the president has insisted the economy is strong, he also called on the Federal Reserve to cut its key interest rate by 100 basis points. The Fed cut its federal fund rates by a quarter point on July 31. Minutes from that Fed Meeting will be released Wednesday afternoon and will offer a look at how the central bank views the economy.
The Fed is expected to vote for another rate cut at its Sept. 18 meeting.
With Tuesday's selling, the major averages remain 4% or more below their peaks reached in July. The S&P 500 is off 4.2% from its July high. The Dow is down 5.2%
The Nasdaq is off 4.7%, with the Nasdaq 100 index down 4.52%. The Nasdaq 100 was off 0.71% on the day.
An additional factor that probably came into play -- many investors and money managers go on vacation in the last two weeks of August, which reduces trading volumes and can boost volatility.
“For some time, we have been concerned that investors were too reliant on Fed rate cuts and too complacent about the prospects for a China trade deal, and we are now seeing the market waking up to these risks," wrote David Spika, president of GuideStone Capital Management, in a Tuesday note. "There is way too much uncertainty to be near-term bullish today,"
Tech shares were held back (with Apple (NASDAQ:AAPL) an exception) by a Wall Street Journal report that as many as 20 states attorneys general will launch a joint antitrust investigation of large technology companies.
Apple's gain was tiny, just 1 cent to $210.36. It was one of 24 Nasdaq 100 stocks that were higher Tuesday and one of just three Dow stocks to see gains on the day.
The Dow was led by Home Depot (NYSE:HD), whose earnings beat analysts' estimates. Shares were up 4.4% as a result. But the company injected some notes of worry. Lumber prices were lower, the company warned, and it's worried about the impact of higher tariffs on many home-improvement products.
The third Dow winner was United Technologies (NYSE:UTX), up just 3 cents.
Oil prices were basically flat, with West Texas Intermediate crude down a penny at $56.13. Brent crude added 29 cents to $60.03 a barrel.
U.S. energy stocks, particularly oil-and-gas production and oil services companies, struggled.
Retail stocks were hit, particularly Macy’s (NYSE:M) and Nordstrom (NYSE:JWN). Nordstrom reports fiscal-second-quarter earnings after Wednesday's close. Macy's quarterly results last week were badly received, with shares falling 10% in a day. Nordstrom shares are down 45% this year and 20% since June 28.
Adding to the unease in U.S. markets were worries about slow growth in Europe and a growing political crisis in Italy after its prime minister resigned.
Winners and Losers in the S&P 500
Home Depot (NYSE:HD), defense contractor Raytheon (NYSE:RTN), home-improvement retailer Lowe’s Companies (NYSE:LOW) and medical-equipment company Medtronic (NYSE:MDT) were among the top S&P 500 performers.
Discount retailer Kohl's (NYSE:KSS), chemical-maker Dow Inc. (NYSE:DOW), Macy’s (NYSE:M) and food processor ConAgra Foods (NYSE:CAG) were among the worst S&P 500 performers.