Stocks fell in afternoon trading Monday amid growing speculation on Wall Street that unexpectedly strong U.S. employment data may keep the Federal Reserve from aggressively cutting interest rates.
The market rallied through much of June after the central bank signaled that it's prepared to lower its benchmark interest rate to offset slowing global growth and the fallout from U.S. trade conflicts.
Most investors have been expecting the Fed to approve at least a quarter-point rate cut at its upcoming meeting of policymakers at the end of this month. But a report Friday showing that U.S. employers added a robust 224,000 jobs in June has dimmed Wall Street's hopes for a more aggressive half-point cut. The Fed's benchmark rate currently stands in a range of 2.25% to 2.5%.
Technology and health care stocks drove much of the market's early slide. Apple dropped 2.1% and Cardinal Health slid 1.6%. Communications companies also declined broadly. Google parent Alphabet fell 1.4% and TripAdvisor dropped 4.2%.
Banks fell as bond prices rose, sending yields lower. When bond yields decline they pull down interest rates that banks charge on mortgages and other consumer loans. Bank of New York Mellon slid 3.3%.
Traders shifted money into U.S. government bonds and sectors seen as less risky, including real estate. Macerich rose 1.3%.
Energy stocks rose along with the price of crude oil. Helmerich & Payne gained 0.9%.
Homebuilders were broadly higher as the yield on the 10-year Treasury note declined, setting the stage for lower mortgage rates that reduce the cost of a home loan. Beazer Homes USA rose 1.4%.
Monday's slide places the market on course for its second straight loss. The benchmark S&P 500 index closed at record highs three days in a row last week and is about 0.7% below its all-time high set Wednesday.
KEEPING SCORE: The S&P 500 was down 0.5% as of 3:14 p.m. Eastern time. The Dow Jones Industrial Average slid 121 points, or 0.5%, to 26,800. The Nasdaq composite dropped 0.8%, while the Russell 2000 index of smaller company stocks lost 1%.
Major stock indexes in Europe closed lower.
ANALYST'S TAKE: The two-day drop follows the best June for the S&P 500 in 30 years and solid gains last week, but comes ahead of a busy calendar that includes testimony by Fed Chairman Jerome Powell before Congress this week, noted Bill Northey, senior investment director at U.S. Bank Wealth Management.
"And we're on the eve of the beginning of second quarter earnings season, so it's simply an equity market taking a breather between those events," he said.
RATE CUT DOUBTS: The Federal Reserve will hold its next meeting of policymakers at the end of July, after which the panel will reveal whether it has decided to cut rates for the first time since the Great Recession in 2008 in the face of slowing economic momentum around the world.
Last year, Fed officials raised rates four times, in part to stave off the risk of high inflation and in part to try to ensure that they would have room to cut rates if the economy stumbled.
On Friday, the Fed emphasized that it would act as necessary to sustain the economic expansion, while noting that most Fed officials have lowered their expectations for the course of rates. The Fed's statement came in its semiannual report on monetary policy.
Investors will be listening closely for any hints on the central bank's interest rate policy on Wednesday and Thursday, when Powell delivers the Fed's monetary report to Congress.
BIG BANK SHAKEUP: Germany's struggling Deutsche Bank tumbled 6% after it disclosed plans to cut 18,000 jobs by 2022 as it shrinks its investment banking division. It says the move is part of a sweeping restructuring aimed at restoring consistent profitability and improving returns to its shareholders.
RED FLAGS: F5 Networks was among the biggest decliners in the S&P 500 after an analyst at Goldman Sachs downgraded the stock, saying the provider of cloud computing services for mobile apps faces risks amid weaker short-term business spending and rising competition. The stock slid 3.8%.
HOME SWEET HOME: MDC Holdings jumped 8.5% after the homebuilder issued preliminary second-quarter results that show orders for new homes jumped 32% from a year earlier.
PROMISING THERAPY: Sangamo Therapeutics climbed 4.2% after the gene therapy company gave a positive update on research into an experimental treatment for severe hemophilia A.