RTTNews - Stocks saw a sharp pullback on Monday, as last week's disappointing data on the health of the consumer sparked a broad-based sell-off in equities. The major averages all finished substantially lower, as some speculated that the markets rose in spite of weak fundamentals.

Also deflating traders' mood was news that Lowe's (LOW) second quarter earnings and revenues fell short of estimates. The home improvement retailer also provided disappointing guidance.

Nonetheless, some of the pessimism was moderated by the release of a report from the Federal Reserve Bank of New York showing that conditions for New York manufacturers improved for the first time in well over a year in the month of August.

The New York Fed said its general business conditions index rose to 12.1 in August from a negative 0.6 in July, with a positive reading indicating an expansion in the manufacturing sector. Economists had been expecting the index to increase more modestly to 3.0.

Stocks rose by a modest margin after the National Association of Home Builders released its report on homebuilder confidence in the month of August, showing that its homebuilder confidence index rose to its highest level in over a year.

The report showed that the NAHB/Wells Fargo Housing Market Index rose to 18 in August from 17 in July. With the increase, which came in line with economist estimates, the index rose to its highest level since June of 2008.

The major averages remained stuck in the red going into the close, finishing near their worst levels of the day. The Dow closed down by 186.06 points or 2 percent at 9,135.34, the Nasdaq fell by 54.68 points or 2.8 percent to 1,930.84 and the S&P 500 slipped by 24.36 points, or 2.4 percent to 979.73.

Sector News

Resource stocks turned in some of the day's worst performances, with steel, gold and oil service stocks puling back by considerable margins. The retreat came as commodities prices fell by substantial margins amid concerns about the outlook for global demand.

Real estate and banking stocks also moved sharply lower, with the Morgan Stanley REIT Index and the S&P Banks Index posting losses of 5.6 percent and 5.1 percent, respectively.

While the real estate index pulled back off a nine-month closing high set earlier this month, the banking index continued its zigzag movement after reaching a seven-month closing high to close out the first week of August.

Networking stocks also fell, with the NYSE Arca Networking Index slipping by 3.8 percent on the day. The index slid further away from the eleven-month closing high set on Thursday.

The retreat was led by shares of Ciena (CIEN), Alcatel-Lucent (ALU) and Tellabs (TLAB), all of which fell more than four percent. Tellabs fell by 4.7 percent, pulling back off of its best price in seventeen months reached late last week.

While airline, housing, retail and electronic storage stocks also moved sharply lower, health insurance stocks bucked day's downward move. The Morgan Stanley Healthcare Payor Index finished up 2.4 percent, at a ten-month closing high.

The gains came after President Obama and other administration officials made comments over the weekend suggesting that they are stepping back from the insistence that a public insurance option needs to be part of health care reform.

Dow Components

Nearly all of the Dow components ended the day in negative territory, contributing to the steep loss posted by the blue c hip index.

Alcoa (AA) helping to lead the Dow lower, with the aluminum giant closing down 6.5 percent. With the decline, the stock moved further away from the ten-month closing high set late last week.

Financial stocks also suffered on the day, with Bank of America (BAC), America Express (AXP) and JP Morgan Chase (JPM) all falling by more than four percent. Bank of America retreated from an eight-month closing high, while American Express and JP Morgan moved away from ten-month closing highs.

Caterpillar (CAT), General Electric (GE), DuPont (DD), Home Depot (HD) also showed notable declines, while Pfizer (PFE) was one of two Dow components to eke out a gain. Shares of the drug giant rose by 0.7 percent but remained stuck in a recent trading range. Coca-Cola (KO) also moved higher, bouncing further off of a six week closing low with a 0.5 percent gain.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region finished considerably lower on Monday. Japan's benchmark Nikkei 225 Index slid by 3.1 percent, while Hong Kong's Hang Seng Index fell by 3.6 percent.

The major European markets also closed notably lower, with the French CAC 40 Index and the German DAX Index falling by 2 percent and 2.1 percent, respectively, while the U.K.'s FTSE 100 Index slipped by 1.5 percent.

In the bond markets, treasuries saw strong gains amid the pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.491 percent, posting a loss of 6.7 basis points on the day.

Looking Ahead

Traders will look to two key economic reports on Tuesday, including the Commerce Department's report on housing starts in the month of July. Economists expect housing starts to rise to an annual rate of 598,000 for July from 582,000 in June.

Further, the U.S. Labor Department is scheduled to release its report on producer prices in July, with economists expecting the headline index to show a 0.2 percent decline and the core index to grow by 0.1 percent. Both reports are slated for an 8:30 a.m. ET release.

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