Stocks Fall as Traders Lock in Profits After Rally

With the stock market in a bit of a news lull, investors decided to lock in some profits.

Stocks fell modestly Monday in the absence of any major corporate or economic developments. Investors were cautious ahead of a two-day meeting of the Federal Reserve that starts Tuesday, and they're waiting for retail earnings reports to give some clues about consumer spending for the rest of the year.

Bond prices jumped as stocks fell. Monday's moves in both the stock and credit markets weren't surprising after major stock indexes shot up 1 percent last week. The Dow Jones industrials fell 32 points and all the major indexes each fell less than half a percentage point.

Investors want to see what the Fed has to say about how the economy is faring when its meeting ends Wednesday. It is widely expected the Fed will keep key interest rates steady at near zero, but Wall Street will be paying more attention to the economic assessment the Fed issues with its rate decision rather than any rate move itself.

"People want to see some words — some confidence — coming out of the Fed that the economy is improving," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

Even if the Fed says areas like housing and unemployment are making gradual improvements, traders have other worries. Banks still have billions of dollars in bad debt and the Fed said in a snapshot of economic conditions at the end of July that commercial real estate activity continues to weaken.

Analysts are still concerned about how and when policymakers will withdraw the enormous support the Fed implemented in the fall to prop up the financial system and the overall economy. The economy must first be stable enough to withstand an increase in interest rates that would boost borrowing costs, including mortgage rates.

Consumers are expected to be one of the market's main concerns during August. Big retailers such as Wal-Mart Stores Inc. and Macy's Inc. report earnings this week, and others release results in the coming weeks. There appeared to be some nervousness ahead of those reports, as retailers were among the biggest losers Monday.