MARKET SNAPSHOT: U.S. Stocks Fall; Momentum Plays Hit Hard

By Anora Mahmudova and Victor Reklaitis, MarketWatch

NEW YORK (MarketWatch) -- So-called momentum plays led a selloff in U.S. stocks on Tuesday that pulled the Dow Jones Industrial Average and S&P 500 further from record levels.

Shares of biotechnology, Internet and small-cap companies were battered for a second day.

The Dow Jones Industrial Average(DJI) dropped 117.59 points, or 0.7%, to a preliminary 16,906.62, while the S&P 500(SPX) shed 13.94 points, or 0.7%, to 1,963.71. The Nasdaq Composite(RIXF) lost 60.07 points, or 1.35%, to 4,391.46. The iShares Nasdaq Biotechnology ETF (IBB) fell 2.1%, while Global X Social Media Index ETF (SOCL) fell 3.85%.

Rob Stein, chief executive officer of Astor Investment Management, said investors shouldn't be alarmed by Tuesday's pullback.

"When markets reach new peaks, investors tend to take opportunity and lighten up and rebalance. We think the economy is in its midcycle and has more room to grow. In this environment our risk-reward model is still favoring stocks with decent expected returns for the next several quarters," Stein said.

The latest earnings season get its unofficial kickoff after the market's close, as Alcoa Inc. releases its second-quarter results.

Investors had a light load of economic news to digest during the session. A small-business optimism index showed a June dip amid a big fall in those who expect the economy to improve. Job openings at U.S. workplaces rose to 4.64 million in May -- the most since June 2007 -- from 4.46 million in April.

Richmond Federal Reserve President Jeffrey Lacker said the Fed must be pre-emptive, hiking rates before inflation emerges. In contrast, Minneapolis Fed President Narayana Kocherlakota downplayed recent higher readings on inflation, saying he expects the price level to stay below the central bank's target for several more years, possibly even until 2018.

After the close, Alcoa (AA) is forecast to report per-share earnings of 12 cents on revenue of $5.61 billion for the second quarter. Shares rose 0.7%. Check out: What to watch for in Alcoa earnings.

Among individual stocks, TripAdvisor Inc. (TRIP) was left off Wunderlich Securities' list of analyst favorites for the second half of the year. Stock fell 5.6%, making it the biggest loser on the S&P 500.

Tesla Motors Inc. (TSLA) shares dropped 1.6% as the electric car company is being sued in China for trademark infringement. (Read more in the Movers & Shakers column http://www.marketwatch.com/story/alcoa-allergan-and-petsmart-are-stocks-to-watch-2014-07-07.)

In other markets, the Nikkei 225 index closed down 0.4%, though the rest of Asia largely held steady. The Stoxx Europe 600 pulled back after weak German trade data supported the view that economic activity in the country is slowing.

Gold prices(GCQ4) fell a third consecutive session to their lowest settlement in more than two weeks. Crude oil settled slightly lower. The British pound (GBPUSD)slipped on unexpectedly weak U.K. factory data.

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