Wall Street closed mixed on Monday, as stocks struggled to extend the January rally for another session. Apple led tech stocks higher with a 2 percent rebound while Caterpillar gave support to blue chips following its earnings report.
The Dow Jones Industrial Average shed 14.05 points, or 0.1 percent, to close at 13881.93, while the S&P 500 edged 2.78 points lower or 0.18 percent, to close at 1500.18. The Nasdaq posted a modest gain 4.59 point gain, or 0.15 percent, to finish at 3154.30.
Caterpillar was the biggest blue-chip gainer, while Alcoa paced the declines.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.5.
Among S&P sectors, materials lagged, while tech and telecoms rose.
"What we're starting to see is dissipating macro risk and a lessening of this risk-on, risk-off environment and now we're starting to capture the hearts and minds of the individual investor," Charles Schwab's Liz Ann Sonders told CNBC. "I would actually like to see a little bit of a pullback in the near term, but bears are being forced into a corner."
Caterpillar shares jumped nearly 2 percent after it reported earnings of $1.91 a share, excluding a write-down of 87 cents a share relating to a China holding. That compared to earnings of $2.32 a share in the year-earlier period.
The company said it expects profits to improve during the year.
CEO Douglas Oberhelman told CNBC, "What's coming ups in 2013? ... It could be a pretty good year, but we've got that same political issue here in this country that will drive a lot of uncertainty if they start screaming at each other again. [So] we chose a wide-range top and bottom [lines]" for guidance.
Apple shares rebounded nearly 3 percent as bargain hunters stepped in to buy the former highflier. Apple shares are down nearly 16 percent so far this year. The tech giant also announced that it is updating its iOS to 6.1, saying the new version adds LTE support for 36 additional iPhone carriers worldwide.
Meanwhile, shares of Research In Motion fell nearly 7 percent ahead of its BlackBerry 10 launch. RBC Capital writes, "A lot of information on RIM's new BB10 devices has already been leaked so we expect the stock to settle back down post Wednesday's launch."
Facebook shares continued their trek higher following an upgrade to "outperform" by Raymond James.
Shares of PetSmart tumbled 9 percent after Nomura cut its rating on the pet supply retailer to "reduce" from "neutral," citing e-commerce competition and a slower pace of margin expansion.
Out of the auto group, Toyota Motors regained its crown as the world's top selling automaker in 2012, posting record-high sales and beating rivals General Motors and Volkswagen. (Read More: Toyota Wins Back World's Top Auto Sales Crown From GM)
Turning to economic news, pending home sales fell 4.3 percent in December from the previous month, according to a monthly index from the National Association of Realtors. That missed analysts' expectations of a one percent gain.
The durable goods orders report was more encouraging, rising 4.6 percent in December, well ahead of the 2.0 percent that economists had expected.
The surge came as capital spending increased 0.3 percent, a welcome rise as corporate America's balance sheet has swelled to $1.8 trillion and investors look for signs that all that cash will be put to work.
"One of the hallmarks of the rally so far this year is data has been good for some time," JPMorgan's chief equity strategist Thomas Lee told CNBC on Monday. "Investors have been listing numerous reasons why they're under-invested. But today at over 1,500 we still don't find investors that overweight stocks. I think in the short-term we still see the market's direction as up."
The S&P 500 has recorded a 5.4 percent gain thus far in January, making it the 18th-best open to the year since 1900, according to S&P Capital IQ. All 10 sectors within the index have risen.
Investors have poured $55 billion into equity-related mutual funds so far, a record to start the year, according to market research firm TrimTabs.
However, analysts have flagged concerns that markets could be underestimating the potential impact of the U.S. budget sequester — $1.2 trillion worth of automatic spending reductions in departments such as defense due to kick in on March 1 unless Congress stops them.
"If it (the sequester) goes through it would have a 1 percent drag on gross domestic product and unemployment will go up," Tony Nash, managing director at IHS Consulting, told CNBC Asia's "Squawk Box" on Monday.
"If the sequester kicks in and some other tax issues kick in, you're also looking at about 1 percent being added to unemployment, so you're looking at a lot of risk in the first half of the year," he added. The U.S. unemployment rate is 7.8 percent, with the latest monthly job numbers due this Friday.