By Saumya Vaishampayan And Chris Dieterich
Technology and small-company stocks slid Monday, as investors
turned defensive ahead of this week's decision by the Federal
Reserve on interest rates.
Adding to the cautious tone was weak economic news out of China,
jitters about the Scottish independence vote and the closely
watched initial public offering from Alibaba Group Holding Ltd.,
which could be the world's largest initial public offering.
The Dow Jones Industrial Average rose 43.63 points, or 0.3%, to
17031.14, as investors favored shares of large companies such as
Pfizer and Chevron. The S&P 500 index fell 1.41 points, or
0.1%, to 1984.13.
Upbeat trading in the broad market masked sharp declines in tech
stocks and shares of small companies. The tech-oriented Nasdaq
Composite Index dropped 48.70 points, or 1.1%, to 4518.90, its
biggest one-day drop in 2 1/2 months. Investors ditched former
highflying stocks including electric car maker Tesla Motor Inc.,
which dropped 9.1% after one Wall Street analyst cut the stock's
recommendation rating.
The Russell 2000 index of small-cap stocks dropped 14.09 points,
or 1.2%, to 1146.52.
Investors are paying particularly close attention to this week's
Fed meeting, which ends Wednesday, amid expectations that the
central bank could signal a clearer course toward raising interest
rates. For stock investors, that could be good news in the
longer-term should the Fed demonstrate greater confidence in the
U.S. economy. But in the short-term, nervousness about the
potential for higher rates has some investors thinking the market
may be more vulnerable to a selloff.
"It's logical for the market to take a pause," said Bill
Nichols, head of U.S. equities at Cantor Fitzgerald. "The question
is by how much and when will the Fed raise rates, and what the
market's reaction will be when it happens."
The S&P 500 last week suffered its first weekly decline
since early August, while U.S. Treasury bonds suffered their
biggest weekly selloff in a year, evidence of interest rate
worries.
Ralph Segall, co-founder and chief investment officer of
Chicago's Segall Bryant & Hamill, which manages $9.8 billion in
stocks and bonds, said his firm has had a hard time this year
finding stocks to buy at reasonable prices. A prime concern is that
the market looks vulnerable to a shock as the Fed unwinds its
stimulus efforts, he said.
"They've got a tiger by the tail, and I have no idea how I would
let go, " Mr. Segall said, referring to Fed policy makers. "There
is a large amount of complacency," he said, noting that the market
has been mostly coasting higher this year without seeing major
declines.
On Monday, bond buyers sent the 10-year yield down to 2.589%
from 2.612% late Friday. Treasury yields rise as prices fall.
Traders said that disproportionate selling in riskier tech
stocks revealed a desire to gird for potential changes to Fed
policy, as well as to cash out of winning bets.
Some said that the drop in tech was due in part to large money
managers raising cash to make room for Alibaba Group, which is
slated to debut Friday on the New York Stock Exchange.
On the economic front, August industrial production fell 0.1%
from the prior month, marking the first decline since January.
Separately, data showed factory activity in the New York area
jumped to its highest since late 2009, though the outlook for
hiring waned, according to the New York Fed's Empire State
index.
European and Asian markets reacted to data showing a slowdown in
Chinese industrial production in August. Hong Kong and Australian
stocks fell, and Europe, the Stoxx Europe 600 Index inched down
0.1%
Many investors are focus on a vote Thursday which will determine
whether Scotland should break its more than 300-year union with
England, a move that would usher in economic uncertainty.
Corporate deals also attracted attention on Monday. Microsoft
Corp. agreed to buy Mojang AB, the Swedish company behind the
videogame "Minecraft," for $2.5 billion. Shares of Microsoft fell
1%.
Cognizant Technology Solutions Corp. said it agreed to buy
privately held TriZetto Corp., which provides information
technology and other services to health-care companies, for $2.7
billion in cash. Cognizant shares slipped 1%.
Anheuser-Busch InBev NV is in talks with banks about financing a
deal to buy SABMiller PLC, The Wall Street Journal reported. The
deal between the world's largest brewing companies could be worth
roughly GBP75 billion ($122 billion). That news comes after
Heineken NV said it rejected a takeover approach from SABMiller.
U.S.-listed shares of Anheuser-Busch InBev rose 3.2%.
In commodity markets, crude-oil futures added 0.7% to settle at
$92.92 a barrel. Gold futures rose 0.3% to settle at $1,233.60 a
troy ounce.
Write to Chris Dieterich at chris.dieterich@wsj.com and Saumya
Vaishampayan at saumya.vaishampayan@wsj.com