Wall Street faces drop down after weak data

Wall Street's major indexes slumped on Monday after a weak U.S. construction spending report, as investors took advantage of optimism over a U.S.-China trade deal to lock in profits after the market's strong run to start 2019.

U.S. construction spending unexpectedly fell in December as an investment in both private and public projects dropped, leading economists to expect that the government will trim its economic growth estimate for the fourth quarter. Before turning negative, stocks had climbed initially during the session following a report that U.S. President Donald Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27.

Optimism over the world's two largest economies reaching a trade truce already has been a significant reason fueling the market's rally since late December, along with investors' belief that the Federal Reserve will not be aggressive in raising interest rates. The S&P 500 remains up about 11 per cent in 2019. "There has been pricing in of this expectation throughout the early months of 2019, which is partly why you have had such a bullish market," said Alicia Levine, chief strategist at BNY Mellon Investment Management in New York. "The market expects a trade deal with China, so there is a little bit of sell on the news here," although Levine added that stocks ultimately could still move higher on a potential trade deal.

The Dow Jones Industrial Average fell 259.74 points, or 1 per cent, to 25,766.58, the S&P 500 lost 19.01 points, or 0.68 per cent, to 2,784.68 and the Nasdaq Composite dropped 44.40 points, or 0.58 per cent, to 7,550.95. Levine and other market watchers also pointed to the 2,800 level for the S&P 500 as a key technical level. The benchmark index rose as high as 2,816.88 during the session.

"We have been in this area now for two to three weeks," Levine said. "The market is consolidating and we are now at more normalized valuations." Ten of 11 major S&P 500 sectors were in negative territory, with materials eking out again. Healthcare was the biggest decliner, with insurer UnitedHealth Group shares down 3.9 per cent and also weighing on the Dow.

In corporate news, AT&T shares fell 2.8 per cent as the company is restructuring its WarnerMedia business, according to a memo sent to employees on Monday and seen by Reuters. Declining issues outnumbered advancing ones on the NYSE by a 1.87-to-1 ratio; on Nasdaq, a 1.90-to-1 ratio favoured decliners.

The S&P 500 posted 40 new 52-week highs and two new lows; the Nasdaq Composite recorded 77 new highs and 25 new lows.