Yellen testimony undoes early gains from bank earnings, strong retail and manufacturing reports
The Federal Reserve's latest take on the economy put many investors into sell mode on Tuesday, sending stocks mostly lower after a brief upward turn early in the day.
Fed Chair Janet Yellen, speaking before Congress, said the economy has yet to recover fully but indicated the central bank could possibly raise its key short-term interest rate sooner than projected.
The Fed issued a report noting that valuations for stocks in some sectors, such as social media and biotech firms, appear to be stretched, sending shares of Facebook, Twitter and LinkedIn lower.
By suggesting some stocks could be overvalued, the Fed is adding to a growing belief among some market watchers that stocks are due for a pullback, said Drew Wilson, an equity analyst at Fenimore Asset Management.
“In this type of environment when you have a lot of uncertainty, essentially you have this equilibrium that's looking to be broken one way or another, and the Fed chair saying ‘financial bubble' could do that,” Wilson said.
Investors had plenty more to consider, including a mostly encouraging batch of corporate earnings and economic data.
The major financial market indexes were up slightly in premarket trading as JPMorgan, Goldman Sachs and Johnson & Johnson released quarterly results that exceeded Wall Street's expectations.
Separate reports on retail sales and manufacturing growth added to the early lift.
But stock indexes diverged shortly after the market opened and then fully veered into the red about an hour into regular trading as investors began to tune into Yellen delivering the central bank's semi-annual economic report to Congress.
Stocks finished the day mixed, with the Dow Jones industrial average eking out a tiny gain on the day. The Dow added 5.26 points, or 0.03 percent, to 17,060.68. The index is down slightly from its July 3 record of 17,068.65.
The Standard & Poor's 500 index fell 3.82 points, or 0.2 percent, to 1,973.28. The index is down 0.6 percent from its most recent all-time high of 1,985.44 set on July 3.
The Nasdaq composite shed 24.03 points, or 0.5 percent, to 4,416.39.
The three stock indexes are all up for the year.
Bond prices barely budged. The yield on the 10-year Treasury note held steady at 2.55 percent.
Several tech stocks surged in after-market trading on Tuesday.
Intel jumped $1.37, or 4.3 percent, to $33.08 after reporting strong second-quarter earnings and an increase to its stock buyback program. Apple and IBM rose after the former rivals announced they are teaming up to work on mobile applications in a bid to sell more iPhones and iPads to corporate customers. Apple rose $1.74, or 1.8 percent, to $97.06 in extended trading. IBM added $4.06, or 2.2 percent, to $192.55.
Meanwhile, Facebook fell 73 cents, or 1.1 percent, to $67.17, while Twitter slipped 43 cents, also 1.1 percent, to $37.88. LinkedIn fell $1.19, or 0.7 percent, to $158.51.
Investors are mostly focused on company earnings this week, including quarterly reports from Bank of America, eBay and Yum Brands on Wednesday.