NEW YORK – Stocks fell Monday as an early rally quickly ran out of fuel, marred by disappointing employment and construction spending data and a brokerage downgrade of Sun Microsystems, while a drop in crude oil prices hit energy shares.
The Dow Jones industrial average (search) was down 53.58 points, or 0.50 percent, at 10,729.43 and the Standard & Poor's 500 Index (search) was down 9.84 points, or 0.81 percent, at 1,202.08. The Nasdaq Composite Index (search) was down 23.29 points, or 1.07 percent, at 2,152.15.
All three gauges posted their largest one-day percentage declines in about 3 weeks.
"The market has been pricing in fairly healthy economic growth and earnings for the next year," Gordon Fowler, chief investment officer for the Glenmede Trust Company in Philadelphia, said. "We're in a situation where the market is vulnerable to any sort of negative news."
In 2004, stocks rallied after the U.S. presidential election in November. For the year, the Dow ended up 3.2 percent, Nasdaq ended 8.6 percent higher and the S&P advanced 9 percent.
U.S. construction spending fell unexpectedly by 0.4 percent in November, as a cooling in residential construction overpowered a small rise in public spending, a government report showed on Monday.
"There is a lot of weakness in technology and people are selling the cyclical stocks after they look at the construction spending figures," said Ted Oberhaus, manager of equity trading Lord Abbett & Co.
The Institute for Supply Management (search) said its index of national manufacturing activity rose to 58.6 in December from 57.8 in November, with an increase in new orders. But the ISM's employment index fell to 52.7 from 57.6.
"The new orders were strong, but that seems to have been overlooked for the disappointing employment index," said Gary Shilling, president of investment research firm A. Gary Shilling & Co.
A brokerage downgrade of network computer maker Sun Microsystems (SUNW) hurt technology shares. Sun Micro fell 5.2 percent to $5.11 after Sanford Bernstein cut its rating to "underperform."
Exxon Mobil Corp. (XOM) fell 2.3 percent to $50.08, while ChevronTexaco Corp. (CVX) was down 3 percent to $50.90. Crude oil prices fell $1.33 to $42.12 a barrel as mild winter weather hurt demand for heating oil demand.
Wall Street welcomed a sharp drop in crude futures, triggered by mild weather in the Northeast and reports of increased crude production. The drop was seen as good news for consumer spending, which accounts for two-thirds of the nation's economic growth. A barrel of light crude was quoted at $42.20, down $1.25, on the New York Mercantile Exchange.
The dollar also rose slightly against the euro and the yen, easing investors' worries about inflation. Over the past two weeks, the dollar regularly fell to fresh all-time lows against the euro.
Internet stocks Google Inc. (GOOG) and Yahoo (YHOO), rose after Goldman Sachs raised fourth-quarter estimates for the companies. Yahoo! rose 50 cents to $38.18, while Google surged $9.92 to $202.72, a record high close.
While the majority of retailers were expected to report their holiday sales results on Thursday, Wal-Mart gave Wall Street a preview of its sales results, which were better than expected and sparked hope that other retailers would fare similarly.
Sales at Wal-Mart stores (WMT) open at least a year rose 3 percent for December, prompted by strong after-Christmas sales. The company's previous forecasts were in the middle of a 1 percent to 3 percent range. Wal-Mart gained 53 cents to $53.35.
Drug store chain Walgreen Co. (WAG) jumped $2.01 to $40.38 after the company reported a 30.5 percent jump in profits, crediting increases in prescription and general merchandise sales. The company beat Wall Street earnings forecasts by 2 cents per share.
Kmart Holding Corp. (KMRT) said its same-store sales fell 4.6 percent for November and December — which represents an improvement over past sales declines for the struggling discount retailer. Kmart climbed $1.15 to $100.10.
Trading was active, with 1.5 billion shares changing hands on the New York Stock Exchange and about 2.2 billion shares were traded on Nasdaq.
Stocks on the decline outnumbed those on the rise by about 3-to-1 on the NYSE. On Nasdaq, advancing issues outpaced decliners by about 2-to-1.
The Russell 2000 index of smaller companies was down 11.13, or 1.71 percent, at 640.44.
Overseas, markets in Japan and Britain were closed for the New Year's holiday. Elsewhere, Germany's DAX index closed up 0.83 percent, and France's CAC-40 climbed 0.9 percent for the session.
Reuters and the Associated Press contributed to this report.