By Christine Idzelis and William Watts
U.S. stocks closed lower Tuesday, after a five day rally to record highs for the main indexes, ahead of quarterly results from some of the most prominent names in the technology sector and as a Chinese regulatory crackdown dampened the investing mood on Wall Street
The developments in Asia come as investors are also waiting for economic reports this week, including second quarter GDP, and a policy update from the Federal Reserve on Wednesday.
How did stock benchmarks trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.09% fell 85.79 points, or 0.2%, to 35,058.52.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.75% declined 20.84 points, or 0.5%, to 4,401.46.
The tech-heavy Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.50% dropped 180.14 points, or 1.2%, to 14,660.58, its largest one day fall since May 12.
On Monday , major benchmarks closed at record highs for a second straight session. The Dow and the S&P 500 each rose 0.2%, and the Nasdaq Composite inched higher to also set a fresh record. All three indexes rose for a fifth straight day.
What drove the market?
“How many straws does it take to break a camel’s back?” said Arnim Holzer, macro and correlation defense strategist with EAB Investment Group, in a phone interview Tuesday. “What we’re seeing now is a market where there are a lot of straws.”
Concerns weighing on the stock market include China’s crackdown on technology companies and worries that the delta variant of the coronavirus will hurt global growth, according to Holzer. Companies in the S&P 500 index have a significant portion of earnings outside the U.S., he said.
The Hang Seng HK:HSI ended 4.2% lower in Asian trade, marking its second consecutive drop of more than 4%, amid China’s regulatory crackdown on technology stocks.
Meituan /zigman2/quotes/205161725/delayed HK:3690 +4.39% shares dived after China published rules requiring online food platforms to pay minimum wage, but the selling was broad-based, with technology giants Tencent /zigman2/quotes/204605823/delayed HK:700 +2.57% and Alibaba /zigman2/quotes/215112034/delayed HK:9988 +0.31% /zigman2/quotes/201948298/composite BABA +0.73% each seeing sharp declines.
Still, analysts noted that U.S. stocks were trading near all-time highs and argued that considerations closer to home were likely to call the tune for markets beyond any immediate reaction to the China developments.
The “two big factors” over the course of the next week remain “earnings reports and what we hear from the Federal Reserve,” said Bill Northey, senior investment director at U.S. Bank Wealth Management, in an interview, adding that “this is against a backdrop of a very strong economic recovery” that was underscored by a strong July consumer-confidence reading Tuesday morning.
The Conference Board’s closely followed index of consumer confidence edged up to 129.1 this month from a revised 128.9 in June, hitting a 16-month high .
“The consumer is the backbone of the economy,” said Michael Reynolds, vice president of investment strategy at Glenmede, in a phone interview Tuesday. While economic and corporate earnings growth may have peaked, slower but “more sustainable” growth following the sharp rebound in the pandemic can continue to “reward” stocks, according to Reynolds.
As for Tuesday’s decline in equities, “the market is just catching its breath after a couple days of really ripping higher,” he said.
But some investors do fear that the selling in Asia may dim the shine of a strong U.S. corporate earnings reporting season thus far.