U.S. stocks pared losses on Monday after opening sharply lower, following a decline in European equities on the collapse of weekend talks between Greece and its creditors.
“Right now the key driver in the U.S. and international markets seems the breakdown in the Greece negotiations,” said Art Hogan, chief market strategist at Wunderlich Securities.
The major averages tested lows hit last week. The Nasdaq Composite traded about 0.5 percent lower after falling more than 1 percent in the open as the iShares Nasdaq Biotechnology ETF (IBB) declined and Apple edged lower.
The Dow Jones industrial average fell back into the red for 2015. The index traded about 120 points lower after earlier falling nearly 200 points, with United Technologies leading almost all blue chips lower. Information technology was among the greatest decliners in the S&P 500 as all 10 sectors fell.
United Technologies said on Monday it will either spin off or sell its Sikorsky Aircraft division, which makes Black Hawk helicopters for the U.S. military. Earlier in the month the unit said it would cut 1,400 jobsand consolidate facilities on reduced demand from international military orders and energy companies, a primary non-defense customer.
The Dow transports also traded lower, off half a percent as all airlines except JetBlue declined.
“We’re seeing some selling ahead of the Fed, and we’re selling on lack of progress in Greece,” said Adam Sarhan, CEO of Sarhan Capital.
“The global economy remains weak. If the Greece domino falls, that could adversely affect (or) derail the global recovery,” he said. “With rates at zero and Greece in the euro the economy’s barely growing.”
The German DAX closed 1.89 percent lower, while the Greek ATHEX Composite briefly fell more than 5 percent as regional bank stocks sold off. Greek 10-year bond yields gained about 4 percent after earlier spiking more than 7 percent.
Athens and its creditors failed to come to a deal over the weekend because Athens did not accept demands for deeper reforms of pensions, value-added tax (VAT) and of its administration, labor markets and industry, Reuters said. The European Commission said on Monday that Greece’s creditors have made substantial concessions, and Germany’s EU commissioner said the time had come to prepare for a “state of emergency”.
European Central Bank President Mario Draghi also said on Monday that the ECB would continue approving emergency funding for Greek banks as long as they have enough cash and collateral to operate. He added “the ball lies squarely in the camp of the Greek government to take the necessary steps.”
Last week, the International Monetary Fund said “major differences” remained and its team left Brussels, where negotiations were held.
“There’s just a lot of uncertainty we just don’t know how markets would play out were Greece to default,” said Ben Garber, capital markets economist at Moody’s Analytics. “It’s best to trade cautiously.”
He said the bond market indicated some flight to safety on Greece and disappointing U.S. industrial production data.
Treasury yields recovered slightly in late morning trade, with the U.S. 10-year Treasury yield near 2.36 percent after hitting a low of 2.31 percent and the 2-year yield near 0.70 percent. The German 10-year bund yield gained to 0.82 percent after earlier dipping below 0.80 percent.
Outside of developments in the Greece debt talks, the key event for the week is the Federal Open Market Committee’s two-day meeting, which begins on Tuesday and concludes Wednesday afternoon with a statement and press conference. Investors will scrutinize the release for indications on the timing of a short-term interest rate hike, for which consensus is September.
Expectations for a September liftoff most likely mean Fed chair Janet “Yellen’s press conference will be more hawkish than usual,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “That’s going to weigh.”
He said with fears of higher interest rates, uncertainty over Greece and quarterly options expiration on Friday, stocks should be volatile this week. Cardillo continues to watch 2,070 on the S&P 500 for support.
Economic reports on Monday were mixed. However, the second-tier data followed recent improvement in retail sales and the labor market.
Empire manufacturing data showed the weakest level in more than two years as new orders fell, Reuters said. The New York Fed’s Empire State general business conditions index fell from 3.09 in May to negative 1.98 in June, hitting its lowest level since January 2013.
May industrial production unexpectedly fell, dropping 0.2 percent in May.
The National Association of Home Builders (NAHB) housing market index rose more than expected, gaining 5 points in June to the highest since last September.
No major earnings reports are expected.
AIG gained more than 1 percent after a U.S. judge on Monday ruled thefederal government does not owe Maurice “Hank” Greenberg and other shareholders of the company any damages over the company’s 2008 bailout.
The S&P 500 traded down 12 points, or 0.55 percent, at 2,082, with industrials leading all sectors except health care lower.
The Nasdaq traded down 27 points, or 0.53 percent, at 5,024.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.
About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 450 million and a composite volume of nearly 2.3 billion as of 3:26 p.m.
The U.S. dollar reversed to trade lower against major world currencies, with the euro advancing to $1.1290.
Crude oil futures settled down 44 cents at $59.52 a barrel on the New York Mercantile Exchange. Gold futures ended up $6.60 at $1,185.80.