Stocks fell in listless Thursday trading, as a batch of disappointing corporate earnings and a rise in first time jobless claims eventually overtook investors' impulse to buy.
In directionless trading, the Dow Jones Industrial Average ended the session down about 44 points, hovering near 13,865. The S&P 500 Index fell by about four points, finishing a hair below the key level of 1,500, while the the Nasdaq was fractionally lower at 3,142.
Still, the beneficial "January effect" that originally had the Dow flirting with a new high above 14,000 helped the index gain six percent this month. The S&P has gained five percent during January, with the Nasdaq rising four percent. Blue chips posted their best monthly gain since October 2011, and the S&P had its best January performance since 1997.
(Read more: Why the Dow May Not Make It to 14,000)
Although most quarterly earnings reports have been strong, a bearish case for the economy seems to be building, with key data coming in softer than expected.
Analysts say Washington's unresolved budget conflicts have kept some investors on the sidelines. Along with tame economic figures, the threat of sequestration — a mix of automatic spending cuts and tax hikes — have begun to unnerve markets.
On Thursday, economic bellwether companies like Dow Chemical and UPS interrupted a string of relatively encouraging earnings reports. Both fell short of market expectations, citing pockets of weakness at home and abroad.
"You have very mixed results from barometer earnings," Michael Yoshikami, Destination Wealth Management founder and CEO, told CNBC's "Closing Bell".
"What you're starting to see are corporate earnings still being very solid….but the underlying economy is still what I would call a stumbling recovery," he said. "It's getting better but it's going to be two steps forward and one step back."
(Read more: January Barometer May Not Deliver This Time Around)
Thursday's uninspired trading and mixed data set the stage for Friday's December payrolls data, which could either confirm or deny the growing belief that the economic recovery is faltering.
Earlier in the session, markets briefly reacted to news that the Department of Justice moved to Anheuser-Busch InBev's proposed $20.1 billion deal for the rest of the Mexican brewer Grupo Modelo, which put Constellation Brands' plans to fully acquire Crown Imports at risk.
Beer shares bore the brunt of investor displeasure over the antitrust offensive. Constellation's stock was crushed as investors shaved nearly 20 percent off its stock price. Anheuser's shares fell about seven percent to -- other alcohol-related stocks fell in sympathy, seeing Boston Beer and Molson Coors slide by about a percent each.
(Read more: Constellation Shares Drop as DOJ Blocks Modelo Deal.)
The decision converged with less than spectacular earnings results from two corporate giants, and a rise in first time unemployment benefits that dovetailed with Wednesday's glum fourth quarter data. Although a key business barometer helped contain some of the gloom, most investors remained on the sidelines ahead of Friday's U.S. payrolls report.
During January, the market's biggest movers have been technology companies, with several marquee names being whipsawed by investors.
The market continued to punish Research in Motion, which in theory should have basked in the afterglow of its new BlackBerry 10.
After positive buzz about its new handset took the stock to a 52 week high just last week, RIM's shares have tumbled ever since, as analysts doubt whether the company can re-establish itself amid brutal competition. After hitting a 52 week high last week, the stock has lost more than $6, finishing Thursday's session down by five percent above $13.
Technology giant Apple was headed for its largest percentage drop since September 2008. Although the stock was only marginally lower on the day, its shares have plunged 14 percent in January alone. The battering cost Apple its coveted mantle as the world's most valuable company.
(Read more: Sell-Off Costs Apple 'World's Most Valuable' Mantle)
Social networking giant Facebook recovered from an early sell off that drove its shares down by more than six percent after the opening bell. The company beat analysts earnings expectations, but a clutch of Wall Street banks downgraded the stock nonetheless.
The company said expenses would likely rise this year, prompting analysts to downgrade the stock and all but ignore Facebook's strong mobile revenues results.