The Federal Reserve's pending decision on interest rates and the United Kingdom's vote on whether to leave the European Union worried Wall Street enough Tuesday that stocks dropped for another day.
The S&P 500 fell 0.18%, the Dow Jones Industrial Average dropped 0.32%, and the Nasdaq dipped 0.1%. Benchmark indexes recovered from session lows in the final hour.
At the top of investors' concerns was the Federal Reserve, which will conclude a two-day monetary policy meeting on Wednesday with a statement and fresh forecasts, followed by Chair Janet Yellen's press conference. Chances of a June rate hike are virtually non-existent, but investors will be on high alert for clues to the timing of future rate increases.
"The burden of proof is now on the June jobs report to right the ship and rekindle even the faintest anxiety over the Fed's intentions," said David Joy, Ameriprise chief market strategist. "It should be noted that Fed Chair Yellen did strike a somewhat optimistic tone last week regarding the economy. The latest round of reports has suggested a decent rebound from the first quarter, including a rise in manufacturing activity, housing and consumer spending."
According to CME Group Fed funds futures, a July rate hike currently has a 23% probability, September a 37% probability, November a 38% probability, and December a 59% probability.
The calendar is jampacked with report this week that may provide further indications about when a rate hike will come. Consumer price data for May, to be released on Thursday, is expected to show a 0.3% gain. Producer prices, out on Wednesday, are also expected to grow 0.3%.
Industrial production data for the month, however, is expected to show the continued pressure of weaker international demand, a strong U.S. dollar and general weakness in manufacturing.
European markets were also lower for their second session this week as the likelihood of a British exit from the European Union increased. Great Britain will vote in a referendum in nine days and the "leave" option currently has a seven-point lead among voters. A "Brexit" would have major economic implications for the stability of the EU.
Crude oil continued to decline Tuesday, its fourth straight day of losses, despite increased demand expectations projected by the International Energy Agency. The energy watchdog revised its demand forecast to 1.3 million barrels a day over this year from 1.2 million barrels, an increase led by manufacturing growth in India and China. Crude has fallen to multi-year lows in the past year as supply ballooned and demand weakened.
West Texas Intermediate crude oil was down 0.8% to $48.49 a barrel on Tuesday. Crude topped its best level in nearly a year last week and has been in retreat ever since.
Retail sales in May climbed 0.5%, a touch above estimates of a 0.3% increase, though a significant slowdown from 1.3% growth in April. Stripping out the effects of autos and gas, core retail sales increased 0.3%.
"The composition of spending in May was ... encouraging," RBS Securities economists wrote in a note. "In particular, spending at restaurants (a key discretionary spending category) advanced by 0.8% on top of a 0.5% rise in April. Spending on apparel was up 0.8%, building on a 0.4% increase in April."
Gunmakers pulled back after Monday's rally with Smith & Wesson (SWHC) and Sturm Ruger (RGR - Get Report) sharply lower. The gunmakers had spiked on Monday, a day after the shooting in Orlando, Fla., amid speculation that gun sales might rise amid heightened debate on firearm regulation.
Alibaba (BABA - Get Report) climbed after co-founder Jack Ma said the company would no longer rely upon the closely watched gross merchandise volume sales metric after U.S. regulators began an investigation into the practice. The Chinese e-commerce company also said it expects 48% revenue growth for its fiscal year ending in March.
NXP Semiconductors (NXPI - Get Report) slipped after reaching a deal to sell its Standard Products business to a consortium of financial investors consisting of Beijing Jianguang Asset Management and Wise Road Capital for about $2.75 billion. The division generated annual revenue of $1.2 billion over fiscal 2015. The transaction is expected to close in the first quarter of 2017.