A Wall Street sign is pictured outside the New York Stock Exchange amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., April 16, 2021.
A Wall Street sign is pictured outside the New York Stock Exchange amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., April 16, 2021. Reuters / Carlo Allegri

Wall Street fell on Monday, with declines in energy companies weighing against gains in Boeing as investors digested the U.S. stock market's biggest monthly gains in two years.

Stocks gave up some of a strong rally from last week that was driven by bets the Federal Reserve may not be as aggressive with interest rate hikes as some had feared.

Also helped by stronger-than-expected second-quarter results, the S&P 500 and the Nasdaq in July posted their biggest monthly percentage gains since 2020.

Some investors on Monday became more cautious in the wake of that recent rally.

"There are still a lot of questions about whether we are really out of the woods economically, and we probably aren't," said Tom Martin, senior portfolio manager at GLOBALT Investments in Atlanta. "We're not even close on the (economic) effects of the Fed raising interest rates."

The Federal Reserve says it aims to tame inflation and cool down demand with the interest rate hikes, but some investors and analysts worry that its aggressive moves could drive up unemployment and cripple the economy.

U.S. manufacturing activity slowed-less-than-expected in July, with signs that supply constraints are easing, a report showed.

That data came on the heels of surveys indicating factories across Asia and Europe struggled for momentum in July as flagging global demand and China's strict COVID-19 curbs slowed production.

Oil prices fell on demand concerns, which in turn weighed on the energy sector. The S&P 500 energy index tumbled 3% and was the deepest decliner among 11 sectors. [O/R]

The factory activity data will be followed by the monthly U.S. jobs report on Friday, which will be parsed for clues about the Fed's next moves in its fight against decades-high inflation.

The U.S. central bank has raised interest rates by 2.25 percentage points so far this year and has vowed to be data-driven in its approach toward future hikes.

Boeing Co gained about 6% after Reuters reported the U.S. aviation regulator approved the planemaker's inspection and modification plan to resume deliveries of 787 Dreamliners.

Wall Street has fallen in 2022, however the earnings season has showed companies were far more resilient in the second quarter than estimated. Of 283 S&P 500 companies that have reported results, 78% have topped profit estimates, as per Refinitiv data. The long-term average is 66%.

At 1:52 PM ET, the S&P 500 was down 0.58% at 4,106.36 points.

The Nasdaq declined 0.52% to 12,325.94 points, while the Dow Jones Industrial Average was down 0.36% at 32,728.07 points.

Meanwhile, U.S. House of Representatives Speaker Nancy Pelosi was set to visit Taiwan on Tuesday. China warned that its military would never "sit idly by" if she visited the self-ruled island claimed by Beijing.

PerkinElmer Inc jumped 6.3% after the medical diagnostic firm said it will sell some of its businesses along with the brand name to private equity firm New Mountain Capital for up to $2.45 billion in cash.

Declining stocks outnumbered rising ones within the S&P 500 by a 2.0-to-one ratio.

The S&P 500 posted 5 new highs and 31 new lows; the Nasdaq recorded 55 new highs and 87 new lows.