An economic reality check is putting the stock market rally back on hold.
Stocks mostly fell Tuesday after the Conference Board said consumer confidence weakened more than expected in July. Investors worried that consumers' waning confidence and the rising unemployment rate would hamper the economy's ability to rebound from the longest recession since World War II. Decent demand at a government debt auction helped stocks pare their losses.
According to preliminary calculations, the Dow Jone industrial average was down 19.05, or 0.2%, to 9,089.46 after being down as much as 101 points. The broader Standard & Poor's 500 index fell 3.24, or 0.3%, to 978.94. The Nasdaq composite index rose 6.26, or 0.3%, to 1,974.15 after several technology companies announced acquisitions
If consumers don't step up spending, companies will find it hard to boost revenue. The recent string of stronger corporate profits have come from deep cost-cutting, which can only be used to lift earnings for so long.
But even without the consumer confidence report, analysts have been anticipating some pullback after the market soared 11% in just two weeks on surprisingly strong corporate profit reports. The latest run restarted a rally that began in March but faltered in mid-June on lackluster economic data.
Trading was cautious Tuesday after the latest round of earnings reports. Office Depot said its second-quarter loss widened and results fell short of analysts' expectations and luxury handbag maker Coach said shoppers showed up at factory outlet stores but held off buying pricier items at U.S. department stores.
The third upbeat reading on the housing market since last week helped temper the market's disappointment. The S&P/Case-Shiller Home Price index indicated that home prices posted their first monthly increase since the summer of 2006. Prices in major metropolitan markets rose 0.5% in May from April.
The report is the latest since last week to signal that home sales are stabilizing.
Adam Gould, senior portfolio manager at Direxion Funds in New York, said the recent earnings and economic data had lifted investors' expectations too quickly.
"The sentiment has changed from expecting the worst a couple of weeks ago and being pleasantly surprised to expecting good things now and being disappointed," he said.
Four stocks fell for every two that rose on the New York Stock Exchange, where volume came to 694.6 million shares, compared with 574 million shares traded at the same point Monday.
Investors were relieved after a Treasury Department auction of two-year notes generated sufficient demand. The yield on the two-year note, which moves opposite its price, rose to 1.08% from 1.05% late Monday. The yield on the benchmark 10-year Treasury note fell to 3.70% from 3.73%.
Investors are anxious about government debt auctions because if demand falters Washington could have to entice buyers with higher interest rates. That could hurt an economic rebound.
On Monday, stocks posted small gains after investors grappled with mixed earnings and economic reports. The market also logged a modest advance Friday.
Even with the selling Tuesday the stock market's rally appears intact. That is a sign that even many cautious investors aren't willing to pull out of stocks for fear of missing another leg of the rally.