The closer investors get to the government's July employment report, the more cautious they become.
Stocks slipped Wednesday as investors shied away from big moves ahead of the government's monthly reading on job losses and the unemployment rate, which comes out before the start of trading Friday. The pullback, which took the Dow Jones industrial average down 39 points, followed a 34-point gain Tuesday that was a slowdown from the previous day's triple-digit advance.
The big concern on Wall Street is layoffs, and whether companies trying to preserve their profits during the recession are continuing to slash jobs at a furious pace. Job cuts have to slow for the economy to have a solid recovery.
The caution in Wednesday's trading followed a disappointing report on the service industry. The Institute for Supply Management said its service index, a measure of the health of retail, financial services, transportation and healthcare companies, fell to 46.4 in July from 47 in June. It was the 10th straight monthly slide.
Still, there are plenty of signs of strength on Wall Street, and one is the fact that Wednesday's modest loss was the biggest point drop in the Dow since July 7. Investors have been looking for the market to pause after it started to shoot higher in mid-July. But stocks' occasional dips have been mild because some investors who missed the rally are looking to buy when prices fall.
The ISM report gave investors an excuse to cash in gains after the furious buying of the last month. The Dow is still up 13.9% in just 18 days.
"The market has just had a pretty good advance and is looking for a reason for a pullback," said Henry Herrmann, chief executive of investment management firm Waddell & Reed.
The Dow fell 39.22 points, or 0.4%, to 9,280.97. The broader Standard & Poor's 500 index fell 2.93 points, or 0.3%, to 1,002.72, while the Nasdaq composite index fell 18.26 points, or 0.9%, to 1,993.05.
Treasury prices fell after the government said it would auction $75 billion in notes next week. Some investors are worried that the government will have to entice buyers by offering greater returns. That would drive up interest rates and could make it harder for the economy to recover.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.76% from 3.67% late Tuesday.
Analysts said the drop in stocks was welcome because building on gains in a step-like fashion is more sustainable than a surge without breaks.
The jobs report could reshape ideas about when the economy might recover. Economists expect that it will show the jobless rate rose to 9.6% as employers cut 320,000 jobs last month, better than the 467,000 lost in June.
A private sector report on unemployment offered little encouragement. The ADP National Employment Report, a precursor to the Labor Department's report, said employment fell by 371,000 in July -- slightly more than anticipated -- after a revised loss of 463,000 jobs in June.
In other trading, the dollar was mixed against other major currencies and gold fell.
Light, sweet crude rose 55 cents to settle at $71.97 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies fell 4.75, or 0.8%, to 565.99.