By Kristina Peterson, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks fell Tuesday ahead of the release of minutes from the U.S. Federal Reserve's latest meeting, as grocers and materials weighed on the market following downgrades.
The Dow Jones Industrial Average (DJI) recently dropped 28 points, or 0.2%, to 11643, one day after closing at a 28-month high. The Nasdaq Composite (RIXF) fell 0.9% to 2666. The Standard & Poor's 500-stock index (SPX) lost 0.7% to 1264.
Traders said the market's moves will likely be hesitant until 2 p.m. EST, when the U.S. Federal Reserve releases the minutes from its latest meeting.
Investors are hoping to see the Fed demonstrate continued resolve to engineering a sustained recovery, said Charles Reinhard, global strategist at Morgan Stanley Smith Barney. And they'll be watching to see "if it plans to do so while also incrementally increasing inflationary expectations," he said.
The economic environment has changed since the last Fed meeting, now that the Bush-era tax cuts have been extended, Reinhard noted. "Because we now have more stimulative fiscal policy," he said, "that takes some of the pressure off monetary policy once the QE2 [quantitative easing] program is completed."
Still, the market crept lower as traders waited to get further guidance from the central bank.
Materials weighed on the S&P 500 after UBS cut its stock-investment ratings on two construction aggregate companies to neutral from buy, noting the stocks' strong performance in the fourth quarter even as the political appetite for road spending grew more uncertain. Vulcan Materials (VMC) fell 5.8%, while Martin Marietta Materials shed 6.6%.
Food retailers also lagged after Bank of Montreal downgraded Safeway (SWY) , Vitamin Shoppe (VSI) , and Whole Foods (WFMI) to "market perform" from "outperform," noting limited upside. Safeway fell 3.9%, Vitamin Shoppe was off 5.9% and Whole Foods shed 4.1%. BMO also reduced its estimates for Supervalu, noting the chain's inability to drive traffic, and Kroger (KR) , saying the fiscal year 2011 consensus could be too high given the challenging environment. Supervalu tumbled 7.4%, while Kroger lost 2.1%.
Morgan Stanley also cut Safeway and Supervalu, to "underweight" from "equal weight," noting Supervalu's strategy to reduce prices will collide with inflationary food costs.
Meanwhile, the telecommunications sector gained, as shares of Motorola Mobility Holdings (MMI) rose 9% and Motorola Solutions (MSI) gained 0.4% as Motorola's long-awaited split into two entities officially took place Tuesday. Motorola Mobility consists of the company's consumer-focused smartphone and set-top box business, while Motorola Solutions focuses on handheld communication devices and public-safety radios.
The dollar strengthened against both the euro and the yen. The euro reversed earlier gains to trade recently at $1.3308, down from $1.3351 late Monday in New York.
The U.S. dollar index (DXY) , which tracks the currency against a basket of others, rose 0.4%. Crude-oil prices tumbled below $89 a barrel, while gold futures also declined. Demand for U.S. Treasurys increased, pushing yield on the 10-year note down to 3.31%.
Among stocks in focus, U.S.-listed shares of BP (BP) rose 1.7%, touching a six-month high following reports that compensation payouts for the Gulf oil spill may be much lower than expected and lingering rumors that the company is a takeover target.
Borders Group (BGP) plunged 11% after the troubled book retailer's Counsel Thomas Carney and Chief Information Officer D. Scott Laverty resigned. A unit of closely held Ingram Industries said it would continue to supply books to Borders despite the chain's difficult financial situation.
Drugstore chain Rite Aid gained 2% after its same-store sales rose 0.6% from a year earlier in December, exceeding analysts' expectations and marking the first monthly growth since May 2009.
In U.S. economic data on Tuesday, the Commerce Department reported that U.S. factory goods orders unexpectedly rose 0.7% in November. Economists surveyed by Dow Jones Newswires had forecast a 0.1% decline.