NEW YORK ( TheStreet) -- Stocks dropped Monday as investors turned cautious ahead of Friday's September employment report and the start of the earnings season.

The Dow Jones Industrial Average fell as much as 118 points before settling 78 points, or 0.7% lower at 10,751. The S&P 500 shed 9 points, or 0.8%, to 1,137, and the Nasdaq suffered the steepest knock, declining by 26 points, or 1.1%, to 2,344.

Stocks fell across the board, but materials and tech stocks led the declines. Shares of Alcoa ( AA), which will announce its results later this week, was down 2.7%, and Intel ( INTC) was off 2.6%, pressuring the Dow.

American Express ( AXP) was the worst performer on the Dow, shedding 7% to $38.95 after the Department of Justice filed an antitrust lawsuit against the credit card issuer. The news of the suit came as MasterCard ( MA) and Visa ( V) appeared close to settling their own antitrust charges. Shares of MasterCard were down 1% at $222.40, while Visa ended flat at $73.20.

The market breadth was pretty negative with only one out of four stocks traded on the NYSE advancing. JPMorgan Chase ( JPM), Wal-Mart ( WMT) and Verizon ( VZ) were among the few stocks with positive returns on the blue chip index.

Investors were greeted Monday morning with the kind of mixed economic reports that have come to be expected in a stalling economic recovery.

Factory orders slipped 0.5% in August after rising 0.5% in July, the Department of Commerce said. The decline was in line with expectations.

Meanwhile, pending-home sales positively surprised, jumping 4.3% in August and outpacing expected growth of 1%, according to Briefing.com. August's level compares with growth of 4.5% in July.

Keith Hembre, chief economist and chief investment strategist at First American Funds, said pending-home sales figures tend to jump around from month to month but general housing market indicators continue to point to a market that isn't deteriorating, but also isn't showing much improvement.

Hembre believes investors may be awaiting ISM non-manufacturing numbers for September on Tuesday in addition to Friday's highly anticipated September nonfarm payrolls report from the Labor Department.

Also on tap for the week is the start of third-quarter earnings season.

"Earnings performance has been much stronger than the economy in general, and I would expect that would continue -- although, I think the magnitude of that discrepancy will begin to close. You have seen some softer indicators going into this earnings season in terms of pre-announcements -- they haven't been as robust as they have been in the past few quarters," he said. "Overall, I don't think there'll be a lot of disappointments in the third quarter, but I think the guidance for the fourth quarter and into 2011 will be very important."

In stock news, Microsoft ( MSFT) shares slumped 1.9% to $23.91 on a downgrade from Goldman Sachs to neutral.

Shares across the homebuilding sector declined with the SPDR S&P Homebuilders ETF ( XHB) down by 1.3% at $15.59. Lennar ( LEN) fell 1.9% at $15.36, and Meritage Homes ( MTH) shed 2% to $19.32. KB Home ( KBH) and D.R. Horton ( DHI) also declined.

Department store companies J.C. Penney ( JCP) and Macy's ( M) were under pressure following a Goldman Sachs report that downgraded the chains. Shares of Macy's lost 1.6% at $22.76. J.C. Penney ended higher by 0.6% to $27.60.

Shares of Coca Cola Enterprises ( CCE)shed 30% after Coca-Cola ( KO) announced that it had completed the acquisition of Coca-Cola Enterprises' North American operation.

Investors continued to focus on dealmaking reports. Shares of Sara Lee ( SLE) surged 7.3% to $14.41 after the company reportedly turned down a buyout bid from private-equity firm KKR ( KKR).

Sanofi-Aventis ( SNY) launched a hostile takeover bid of $18.5 billion for biotech company Genzyme ( GENZ). Sanofi shares were down 0.8% to $32.86 while Genzyme's stock added 0.2% to $71.01.

UBS ( UBS) and Credit Suisse ( CS) are being required to hold more capital than their international peers under new rules from the Swiss government. Shares of UBS were down 1% to $16.94, and Credit Suisse's stock shed 0.7% to $42.93.

AIG ( AIG) is reportedly holding talks on selling its mutual fund business in India. According to a report in India's Mint newspaper, AIG is valuing the unit at 4% to 5% of the 10.2 billion rupees ($230 million) of assets it has under management, and at least four asset management companies have shown interest. AIG's stock was up by 1.3%, to $39.35.

Cisco ( CSCO) apparently plans to expand its consumer products strategy by bringing its high-end video conferencing technology into the home, according to a Wall Street Journal report. The stock ended lower by 0.7% to $21.76.

The New York Times ( NYT) plans to repay its $250 million loan from Mexican billionaire Carlos Slim by 2012 -- three years ahead of schedule. The stock dropped 1.3% to $7.75.

Shares of Amazon ( AMZN) gained 1.1% at $155.39 after Citigroup raised its price target on the company citing higher sales from the e-book reader, Kindle. Separately, The Wall Street Journal reported that the online retailer was set to acquire Spanish Internet retailer BuyVip for €70 million.

BP ( BP) issued another € 2 billion bond on Monday, after its $3.5 billion issue last week. The stock was down 2.7% at $40.82.

American, British and Japanese authorities issued travel alerts to citizens living in or traveling to Europe, citing general terrorist threats. The warnings advise caution when using public transportation and visiting popular tourist sites.

Overseas, Hong Kong's Hang Seng jumped 1.7% while Japan's Nikkei slipped 0.3%. The FTSE in London closed 0.7% lower and the DAX in Frankfurt declined 1.2%.

The November crude oil contract shed 11 cents to settle at $81.47 a barrel.

Elsewhere in commodity markets, the December gold contract shed $1 to settle at $1,316.80 an ounce.

The dollar was trading higher against a basket of currencies, with the dollar index up by 0.5%, while the benchmark 10-year Treasury note strengthened 10/32, diluting the yield to 2.479%.

--Written by Melinda Peer and Shanthi Venkataraman in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.