Stocks Deliver Downbeat July Finish

NEW YORK (TheStreet) -- The major U.S. averages fell for a second consecutive session Tuesday with traders showing some nervousness as the Federal Reserve began a two-day policy meeting.

The announcement of a new bond-buying program, or QE3, from the central bank would be a surprise but there is an expectation for the Fed to start to lay the groundwork for such a move in the commentary around its rate decision on Wednesday afternoon. A change in the pledge to keep rates at historic lows for longer than currently telegraphed is viewed as likely.

The Dow Jones Industrial Average slumped 64 points, or 0.49%, to close at 13,009. The blue-chip index, which is now up 6.48% so far in 2012, weakened in the final hour.

The general view of how the Fed meeting is expected to play out was summed up nicely in commentary from Goldman Sachs ahead of the get-together.

"The Federal Open Market Committee (FOMC) is likely to ease monetary policy at the meeting in response to the continued weakness of the economic data and the persistent downside risks from the crisis in Europe," said the firm said Tuesday. "We expect an extension of the current 'late 2014' interest rate guidance to 'mid-2015.'"

"Although a new Fed asset purchase program is a possibility in the near term if the data continue to disappoint, our central expectation is for a return to QE in December or early 2013," Goldman added.

The S&P 500 fell 6 points, or 0.43%, to finish at 1379, while the Nasdaq Composite lost more than 6 points, or 0.21%, to settle at 2939.52.

Apple (AAPL) shares surged 2.6%, reclaiming the $600 level and giving the Nasdaq some support. Ten jurors were selected Monday in the patent battle between Apple and Samsung Electronics. The trial is expected to last about four weeks.

A positive revenue outlook for Apple supplier Cirrus Logic (CRUS) was also boosting sentiment for the iPhone maker as was a report by a Sanford Bernstein analyst theorizing Apple could pursue a stock split in order to clear the way for the company to join the Dow. A spokesperson for S&P Dow Jones Indices told The Wall Street Journal the prospect was "pure speculation."

For July, the Dow added 128 points, or roughly 1%, thanks mainly to the massive rally that closed last week. The S&P 500 tacked on 17 points, or 1.25%, for the month, and the Nasdaq rose more than 4 points, or 0.15%. Year-to-date, the S&P 500 is up 9.68% and the Nasdaq has risen 12.83%.

The weakest sectors in the broad market were energy, consumer non-cyclicals, utilities, basic materials and capital goods. Technology was a bright spot.

The slump in stocks came despite domestic economic data that was generally better than expected. The Case-Shiller 20-city home-price index fell 0.7% year over year, less than the predicted 1.5% decline. But on a monthly basis, all 20 cities posted positive returns and 17 of them saw those rates of change increase sequentially.

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