Dow closes lower as stocks rally takes a breather

The Dow Jones Industrial Average dropped 162.26 points, or 0.41%, ending at 39,313.64, the S&P 500 shed 0.31% to close at 5,218.19, while the Nasdaq Composite was 0.27% lower and settled at 16,384.47

Stocks dropped Monday to start a shortened trading week as the rally that brought Wall Street to record levels took a breather.

The Dow Jones Industrial Average dropped 162.26 points, or 0.41%, ending at 39,313.64. The S&P 500 shed 0.31% to close at 5,218.19, while the Nasdaq Composite was 0.27% lower and settled at 16,384.47.

Shares of Intel slipped 1.7% after the Financial Times reported that new China guidelines would block the firm’s chips in government servers and computers.

United Airlines dropped 3.4% after the Federal Aviation Administration (FAA) said it would be heightening its scrutiny of the carrier after a series of safety incidents.

The market is on track for its fifth successive month of gains, with the major U.S. stock benchmarks crossing new all-time closing high levels last week. The S&P 500 gained nearly 2.3% last week, while the Dow added just below 2% for its best week since December, nearing the 40,000 mark. The Nasdaq Composite, meanwhile, climbed around 2.9% during the period.

These advances were fuelled by the Fed’s latest remarks that maintained central bankers’ rate-cutting timeline for this year, as well as investors’ ongoing enthusiasm for tech stocks amid the AI-powered rally. Overall investor sentiment remains above its historical average, per the latest weekly American Association of Individual Investors’ sentiment survey, reflecting persistent market optimism.

Still, some investors fear the potential impact of an overextended rally and higher-for-longer interest rates.

Sam Stovall, chief investment strategist at CFRA Research, also noted that equities have gotten expensive, with the S&P now trading at a 33% premium to its average price-to-earnings ratio over the last 20 years.

We are coming off of a post-FOMC high, he told CNBC. The market is getting more and more vulnerable to a market decline or a drop in prices.

This week, investors will gain further insight about the path of inflation from the February PCE price index, the Federal Reserve’s preferred inflation gauge, released Friday morning. The market’s reaction will be determined on the following Monday, given the Good Friday holiday.