U.S. stocks dropped on Wednesday on weaker-than-expected economic data, and energy and resource shares, led by Chevron, fell after the government reported a build-up in oil inventories, reflecting reduced demand.
A report from the Institute for Supply Management showed the U.S. services sector shrank again in May, as the index edged up to 44.0, but were shy of expectations. A reading below 50 indications the sector is contracting.
While the rate of decline may have slowed, the fact of the matter is we're not stable and not seeing anything close to growth, said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.
So people are taking a little money off the table, given the recent rally that we've had.
The Dow Jones industrial average <.DJI> dropped 66.27 points, or 0.76 percent, to 8,674.60. The Standard & Poor's 500 Index <.SPX> fell 11.04 points, or 1.17 percent, to 933.70. The Nasdaq Composite Index <.IXIC> shed 9.14 points, or 0.50 percent, to 1,827.66.
New orders received by U.S. factories rebounded in April, but the previous month's figure was revised to reflect a steeper drop. Economists said the numbers reflected some stabilization, but that weakness persisted.
Federal Reserve Chairman Ben Bernanke said in an appearance before the House Budget Committee he expected to see some growth, not robust growth, but some positive growth later this year. Investors have chewed over every bit of economic data, looking for signs of a recovery.
Energy shares led the overall decline after the government reported that crude oil inventories rose unexpectedly last week due to an increase in imports.
U.S. private employers cut more 532,000 jobs in May, according to the ADP Employer Services report. That was slightly worse than 520,000 forecast by economists in a survey by Reuters.
Credit Suisse turned cautious on equities, changing its weightings down to benchmark from overweight. The firm said it was concerned about the economic backdrop and that a recent rise in bond yields had undermined their valuation.
Valero Energy Corp
Since reaching 12-year lows on March 9, the Dow is up nearly 33 percent, and the broad S&P has risen more than 38 percent, causing some strategists to become more guarded as they anticipate some consolidation on Wall Street.
(Reporting by Chuck Mikolajczak; additional reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)