U.S. stocks traded mostly lower Tuesday, with the Dow Jones Industrial Average and S&P 500 index pulling back from record levels, as investors returned from a three-day weekend, extending a decline after a larger-than-expected fall in the June Institute for Supply Management’s service sector index.

Investors were also keeping tabs on oil prices, which pulled back after surging to six-year highs when talks by the Organization of the Petroleum Exporting Countries and its allies failed to come to an agreement on a proposal to boost output in coming months.

What are major benchmarks doing?
  • The Dow Jones Industrial Average

    dropped 407.20 points, or 1.2%, to 34,379.15.

  • The S&P 500

    declined 29.44 points, or 0.7%, to 4,322.90.

  • The Nasdaq Composite

    edged down 4.40 points, or less than 0.1%, to 14,634.93.

U.S. markets were closed Monday in observance of Independence Day, which fell on Sunday. On Friday, the S&P 500 closed at its seventh consecutive record — its longest such streak since 1997 — and the Nasdaq Composite and Dow also finished at all-time highs.

What’s driving the market?

Stocks have slowly pushed further into record territory in recent weeks as investors focused on a strengthening economy as fears of inflation appeared to ease, though supply-chain bottlenecks are seen slowing down the recovery.

The Institute for Supply Management on Tuesday said its service sector purchasing managers index fell to 60.1% in June from a record 64% in May. A reading of more than 50% indicates an expansion in activity.

“The drop in the ISM services index in June suggests that shortages and price increases are becoming an increasing drag on hiring and economic activity,” said Michael Pearce, senior U.S. economist at Capital Economics, in a note.

Meanwhile, U.S. Treasury prices rallied, pushing down yields, with the rate on the benchmark 10-year Treasury note falling back below 1.40%. Falling yields can be a boon to technology and other growth stocks more sensitive to interest rates, while undercutting shares of banks that tend to benefit from higher long-term rates.

Still, analysts said the overall backdrop remains positive as the second half of the year gets under way.

“Sentiment towards risk remains positive as we enter the second half of the year after a positive end to Q2. The S&P 500 and other U.S. indices hit repeated new all-time highs, with investors happy to buy every dip in the markets,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note.

Need to Know: Here’s what could turn a ‘breather’ for stocks into a bigger correction

Accelerating COVID-19 vaccinations around the world and central bank stimulus are seen contributing to strong economic growth, while fears that inflation will hit uncomfortably high levels have been kept at bay as the Federal Reserve and other central banks insist that increased price pressures are a temporary phenomenon resulting from supply-chain bottlenecks, he said.

Read: What to expect if ‘peak everything’ already has happened and markets feel the force of gravity again

Also see: Is the market pricing in ‘peak growth’? These charts suggest as much, says a leading strategist

Oil prices were back in focus, with crude benchmarks pulling back after hitting levels last seen in 2014.

Talks were called off Monday after the United Arab Emirates stuck to its call to increase the baseline used to determine its output level and objected to a plan to extend the framework for the existing program of supply cuts from April 2022 through the end of next year.

Which companies are in focus?
How are other markets trading?
  • The yield on the 10-year Treasury note

    dropped 7.8 basis points to 1.357%. Yields and debt prices move in opposite directions.

  • The ICE U.S. Dollar Index
    a measure of the currency against a basket of six major rivals, rose 0.3%.

  • The U.S. oil benchmark

    turned lower, down 1.4% at $74.13 a barrel on the New York Mercantile Exchange. Gold futures

    rose 1.2% to $1,805 an ounce.

  • European equities turned lower, with London’s FTSE 100

    off 1.2%, while the Stoxx Europe 600 index

    was down 0.7%.

  • In Asia, the Shanghai Composite

    edged down 0.1%, while Hong Kong’s Hang Seng Index

    fell 0.3% and Japan’s Nikkei 225

    rose 0.2%.

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