U.S. stocks fell Tuesday, retreating from Monday gains that pushed the Nasdaq Composite above 5000 for the first time in nearly 15 years and sent other indexes to fresh records.
The Dow Jones Industrial Average dropped 85.26 points, or 0.5%, to 18203.37. The S&P 500 index fell 9.61 points, or 0.45%, to 2107.78, and the Nasdaq Composite declined 28.20 points, or 0.6%, to 4979.90.
Traders said Tuesday's decline was to be expected as it came a day after the Dow and the S&P 500 closed at all-time highs and the Nasdaq Composite rose above 5000 for the first time since March 2000.
"We're at all-time highs with the popular averages, so it's a natural pullback," said Ted Weisberg, president of Seaport Securities Corp.
Equity-trading volumes for the day were muted, traders said.
The Dow and S&P 500 have minted a number of record closes since the financial crisis, boosted by an improving economy, growing corporate profits and low interest rates. So far this year, the Nasdaq Composite is up 5.15% through Tuesday's close, compared with a 2.4% gain in the S&P 500 index. But overall the index's climb back to 5000 has been slow, driven by steady growth in its listed companies' earnings and dividend payments.
As a result, many investors believe it has room to go even higher.
"The euphoria isn't there like it was in March 2000," said Sandy Sanders, senior portfolio manager for the John Hancock Large Cap Equity Fund, which manages roughly $ 2.8 billion. "Earnings are going to drive stocks, and this time around we see a fair amount of companies that are gaining market share in their end markets and have strong earnings growth."
The tech-heavy Nasdaq Composite is 1.4% away from its record close of 5048.62 hit on March 10, 2000.
Overall, short-term sentiment on U.S. stocks is positive, said Stephen Wood, chief market strategist at Russell Investments. In the medium term, there's a push and pull between that positive sentiment and rich valuations. That's why stocks can continue to gain in the U.S. but the returns are likely to be less rosy than in earlier years of the bull market. Mr. Wood said he prefers European stocks, where valuations are more attractive and stocks should benefit from the European Central Bank's aggressive quantitative easing.
"It's going to continue to be a central banker's world," he said. "The European Central Bank is going to try to reproduce the success of the American quantitative easing," he added.
European stocks fell, with France's CAC 40 down 1% and Germany's DAX slipping 1.1%. The ECB meets later this week and investors are looking for answers about the scope of the ECB's bond-buying program.
Investors will get several readings on the labor market later this week. Friday's release of the February jobs report is expected to show the economy added 240,000 new jobs, according to economists surveyed by The Wall Street Journal.
Energy stocks were among the best performers on Tuesday, following the price of oil higher. Crude-oil futures added 1.9% to $ 50.52 a barrel. Shares of energy companies in the S&P 500 rose 0.2% on Tuesday. They are down 19% over the past six months.
In other markets, gold futures slipped 0.3% to $ 1204.00 an ounce. Treasury prices fell, pushing the yield on the 10-year note up to 2.122% from 2.083% on Monday.
Among individual stocks, Best Buy Co. said it plans to buy back shares for the first time since 2012. The electronics retailer posted a better-than-expected profit in its latest quarter. Shares rose 1.4%.
Navistar International Corp.'s shares climbed 0.8% after it said cost-cutting initiatives and increased demand for its medium trucks and school buses helped the company narrow its loss in the January quarter.
Kate Spade & Co. posted a downbeat guidance on Tuesday, anticipating slowing growth as gross margin continues to fall despite strong revenue. Shares of the handbag and fashion company fell 2%.
Springleaf Holdings Inc. said Tuesday it has agreed to buy Citigroup Inc.'s OneMain Financial for about $ 4.25 billion in cash. The combined company would be the biggest subprime lender in the U.S. Springleaf shares jumped 32%, while Citigroup shares added 0.45%.
Write to Corrie Driebusch at corrie.driebusch@wsj.com and Saumya Vaishampayan at saumya.vaishampayan@wsj.com
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