Stocks closed mostly lower yesterday with only the Dow finishing in the green with a gain of 0.59%.

The Nasdaq led the pack lower with a decline of -2.77%, while the S&P gave up -1.39%. The small-cap Russell 2000 and the mid-cap S&P 400 were down as well giving up -1.06% and -1.43% respectively.

The small-caps, mid-caps and large-cap Dow are still sharply higher for the week so far, but the S&P and Nasdaq are both down with two more days to go.

Yesterday's MBA Mortgage Applications rose 3.9% w/w with purchases down -2.7% while refi's were up 15.2%.

The Housing Starts and Permits report showed Starts at 1.353 million units (annualized) vs. last month's upwardly revised 1.314M (from 1.277M) and views for 1.305M. Permits came in at 1.446M vs. last month's upwardly revised 1.399M (from 1.386M) and views for 1.395M.

Industrial Production rose 0.6% m/m vs. last month's 0.9% and views for 0.3%. Manufacturing Output rose 0.4% vs. last month's 1.0% and estimates for 0.0%. And the Capacity Utilization Rate improved to 78.8% from last month's downwardly revised 78.3% (from 78.7%) and estimates for 78.5%.

The Atlanta Fed Business Inflation Expectations showed businesses expecting inflation to be up 2.4% over the next 12 months vs. last month's 2.3% pace.

And the Beige Book showed slight to modest growth, but the outlook was for slower growth over the next 6 months "due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation." But the report also noted that most districts reported "input costs were beginning to stabilize" and that several districts saw improvement in labor supply conditions.

We also got plenty of earnings reports. Before the bell yesterday, Johnson & Johnson posted a positive EPS surprise of 4.06%, and U.S. Bancorp posted a positive EPS surprise of 2.08%. They were up 3.69% and 4.55% for the day. After the close, we heard from Alcoa (which officially kicked off the start of earnings season) by posting a positive EPS surprise of 45.5%. They were up a little more than 1% in after-hours trade.

Today we'll hear from another 87 companies on deck to report with Novartis, Abbott Labs, and The Blackstone Group going before the open, while Netflix, Intuitive Surgical, and Taiwan Semiconductor reports after the close.

We'll also get plenty of economic reports today including Weekly Jobless Claims, the Philadelphia Fed Manufacturing Index, and Leading Indicators.

And we'll see if the market can stabilize after yesterday's pullback. Of course, stocks saw heady gains over the last couple of weeks, so it's not surprising to see some profit taking.

And the rotation trade (and breadth expansion) is still intact as the small-caps and mid-caps outperformed the larger S&P and Nasdaq. True, none of the above were higher yesterday, but the small-caps and mid-caps had racked up bigger gains over the last couple of weeks. And yesterday they ended up pulling back less. So the rotation trade is still on. And likely will be a for a while.

See you tomorrow,