By Saumya Vaishampayan And Chris Dieterich
The Dow Jones Industrial Average rose on Monday, but technology
stocks suffered sharp losses as investors backed away from the
market's riskiest segments.
Cautious trading started a news-heavy week that will bring fresh
commentary from the Federal Reserve, the closely watched public
debut of Alibaba Group Holding Ltd. and a potentially market-moving
vote on Scottish independence.
The Dow Jones Industrial Average rose 43 points, or 0.3%, to
17033, while the S&P 500 index fell less than one point, or
0.1%, to 1985.
Upbeat trading in the broad market masked sharp declines in tech
stocks and shares of small companies. The tech-oriented Nasdaq
Composite index dropped 51 points, or 1.1%, to 4518, while the
Russell 2000 index of small-cap stocks dropped 11 points, or 1%, to
1149.
Traders said disproportionate selling in these riskier corners
of the market revealed a desire to gird for potential changes to
Fed policy, as well as to cash out of winning bets.
Some said the drop in tech was in part because of large money
managers raising cash to make room for Alibaba Group, which is
slated to debut Friday on the New York Stock Exchange in what could
be the world's largest initial public offering. Amazon.com fell
2.7%, while Facebook tumbled 3.9% in the absence of corporate
news.
Traders said the main focus for investors this week is the
two-day Federal Reserve policy meeting, which wraps up Wednesday
and includes a news conference from Fed Chairwoman Janet
Yellen.
The central bank is poised to wind down its monthly
asset-purchase program in October and raise the interest rate
sometime next year. Greater clarity on the path of U.S. interest
rates this week likely would determine the stock market's direction
in the short term, traders said.
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.
"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." 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. In many cases, he says, he is waiting for stocks
he likes to go down before stepping in.
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.
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 focused on a vote Thursday that 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
1.1%.
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 0.9%.
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 rose 3.3%.
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 Saumya Vaishampayan at saumya.vaishampayan@wsj.com and
Chris Dieterich at chris.dieterich@wsj.com