MARKET SNAPSHOT: U.S. Stocks Drift Lower; Energy Sector Swoons

By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks drifted lower on Tuesday as plunging oil prices once again hit shares of energy companies, while a downbeat report on European growth weighed on sentiment.

The price of oil dropped to levels not seen in three years after Saudi Arabia cut oil prices for the U.S., in a move meant to remain competitive amid booming oil production in the U.S.

Meanwhile, the European Commission cut its forecast for growth domestic product for the 18-country eurozone region to 0.8% this year, from a previous forecast of 1.2%, in the spring. The assessment comes ahead of Thursday's European Central Bank meeting.

The S&P 500 edged lower (SPX), as energy sector continued its slide from the previous session. The Dow Jones Industrial Average (DJI) fell, with half of its components trading lower. The Nasdaq Composite was also lower (RIXF)

Weak oil, weak Europe: Already weak oil prices didn't react well to the EU growth assessment. The U.S. oil benchmark continued to slide Tuesday, dropping close to 2% (and as much as 3.5% at pints), and Brent crude also was under renewed pressure after Saudi Arabia deepened price cuts for the U.S. market. Strategists said the move will pave the way for further falls in oil prices and pressure American energy producers.

But Craig Erlam, market analyst at Alpari U.K., said he doesn't buy a connection between weak stocks and falling oil prices, but rather it was probably linked to Monday's batch of mixed data. "Weaker oil prices may be bad for the big oil companies, but when it comes to the global economy, it's actually a hidden stimulus," he said.

Analysts don't expect Wall Street to find much direction ahead of Thursday's ECB meeting and Friday's nonfarm payroll data. "We do expect the market to consolidate till then and the volatility could pick up sharply during the event," said Naeem Aslam, chief market analyst at AvaTrade, in emailed comments.

U.S. voters will head to the polls on Tuesday to decide closely contested Senate races and control of that chambler. See: A breakdown of how the market performs after midterm elections

In U.S. economic news, the nation's trade deficit jumped in September to the highest level since the late spring. The surprising spike in the trade deficit is likely to reduce third-quarter growth when the government revises the report later this month.

St. Louis Fed President James Bullard on Tuesday said that the U.S. economy is on track to grow at a 3% annual rate over the next 14 months, which should allow the Federal Reserve to move ahead with plans to hike short-term interest rates.

Alibaba, Herbalife among stocks to watch: Alibaba Group Holding Ltd. (BABA) reported sales that beat forecasts, sending shares up 1.5%.

Shares of Herbalife Ltd. (HLF) fell 15% after the company reported disappointing third-quarter results.

RetailMeNot Inc. (SALE) sank 26% after posting strong results, but warning that much of its growth has been from "lower monetizing mobile visits."

Sprint Corp. (S) slid 17% after results fell short of Wall Street expectations.

Apple Inc. (AAPL) and Google Inc. (GOOG) reached a deal with Walt Disney Co. (DIS) in which the two tech giants will allow consumers who buy a Disney movie from either of their online stores to watch it on smartphones, tablets and other digital devices that run their rival's operating system.

Other markets: Europe stocks erased gains after news of the cut in eurozone growth forecasts, while in Asia, the Nikkei 225 surged 2.7%. Gold prices (GCZ4) were moderately lower, while the dollar(USDJPY) was taking a breather from rapid gains against the yen.

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