Facebook dipped after the social-networking giant announced a 'Graph Search' service, a social search feature allowing users to combine phrases to get content that's been shared on Facebook. Facebook added that its search function uses Microsoft's Bing as a back-up, sending shares of Microsoft higher. User-review site Yelp tumbled after the announcement, while Google rallied after Facebook said the Graph Search is very different from a regular web search.
"This is a natural 'sell the news' reaction," said Jordan Rohan, managing director at senior analyst at Stifel Nicolaus, of Facebooks's pullback. "[However,] Facebook aims to be central in many ways—they want to be much more useful to their users. I think in a couple of years, this will add to [their revenue and earnings.]"
Dell zipped higher to lead the S&P 500 gainers after a report that said a potential buyout of the computer software maker is moving forward and several banks have been tapped for financing of the deal, according to Reuters. In addition, Jefferies and Deutsche Bank both lifted their price target on the company. (Read More: Dell Buyout Has '50-50' Chance: Billionaire Ross)
Among earnings, Lennar posted earnings that topped expectations and the homebuilder reported a seventh-straight jump in new home orders.
Earnings will kick off in earnest on Wednesday, with reports due from Goldman Sachs, JPMorgan and Ebay. (Read More: Bank Earnings: What to Watch For)
"Traders will most likely continue to positioning themselves for tomorrow when the earning season will most likely take center stage," said Ishaq Siddiqi, market strategist at ETX Capital, in a note.
On the economic front, retail sales rose 0.5 percent in December, thanks to a boost in autos, as consumers largely overlooked the threat of higher taxes, according to the Commerce Department. Economists expected sales to edge up 0.2 percent, according to a Reuters poll. Combined, sales climbed 5.2 percent in 2012.
Meanwhile, producer prices declined 0.2 percent in December, slipping for the third-straight month, according to the Labor Department. Economists polled by Reuters had expected a drop of 0.1 percent.
And manufacturing in New York state fell to -7.8, contracting for a sixth-consecutive month in January, according to the New York Federal Reserve. Economists had expected a flat reading, according to a survey by Reuters.
U.S. business inventories rose 0.3 percent in November to a record $1.62 trillion, according to the Commerce Department, in line with expectations.
"The impact of the economic data on the financial markets might be rather short lived as the political wrangling over the raising of the debt ceiling is starting to heat up in Washington spreading increasingly uncertainty which could limit any advances to the upside," said Siddiqi.