MARKET SNAPSHOT: Momentum Plays Pull Down U.S. Stock Market

By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) -- Momentum stocks dropped after the Federal Reserve suggested valuations on biotech and Internet stocks may be stretched, dragging down the broader market.

Stocks had risen early in the session on better-than-expected results from J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. and generally positive economic data.

By early afternoon, the S&P 500 (SPX) fell 9 points, or 0.4%, to 1,968.351. The Dow Jones Industrial Average (DJI) shed 32 points, or 0.2%, to 17,023.94, after setting an intraday record in the morning. The Nasdaq Composite (RIXF) dropped 39 points, or 0.8%, to 4,400.50. The Russell 2000 (RUT) fell 15 points, or 1.3%, to 1,150.29.

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"Investors are particularly interested to see proof that earnings did bounce back in the second quarter. If we do not see solid growth and positive outlook for the rest of the year, we might see some repricing, as current multiples without growth are not sustainable," said Drew Wilson, investment analyst at Fenimore Asset Management

Federal Reserve Chairwoman Janet Yellen told Congress the Fed could act sooner on interest rates if the labor market keeps surprising. But, she added, that time is not yet here.

Yellen never mentioned the stock values of social media and biotech companies in either her prepared remarks or answers to the questions from the senators. That reference to valuations, which hit the Nasdaq, was in a separate Fed monetary policy report submitted to Congress along with Yellen's testimony.

Read: Live blog and video of Janet Yellen's appearance before Senate.

Among the day's economic news, Empire State manufacturing activity picked up in July to its highest reading in four years. While retail sales in June rose less than expected, most stores except for auto dealers and home-improvement outlets boasted an improvement in revenue.

In earnings news, J.P. Morgan Chase (JPM) reported better-than-expected earnings. Shares rose 3.8%. Read the recap of the earnings call with analysts.

Goldman Sachs(GS) reported second-quarter earnings of $4.10 a share and revenue of $9.13 billion, beating Wall Street estimates. Goldman shares rose 0.8%. Recap: Goldman Sachs CFO says environment mixed with historically low volatility levels.

Yahoo Inc. (YHOO) and Intel Corp. (INTC) are both due to report after the close. Read more about the day's notable movers here.

Gold recovers, pound rallies

Asian markets did build on those gains, with the Nikkei 225 index settling at a more than one-week high. Gold(GCU4) dropped building on Monday's heavy losses. Oil(CLQ4) was pushing lower.

The German ZEW economic-sentiment reading on Tuesday fell far short of expectations, which weighed on Europe stocks and the euro (EURUSD). The British pound(GBPUSD) rallied after U.K. inflation inched closer to the Bank of England's 2% target.

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