Stocks ended mixed and the S&P 500 failed to close at a new record for the second straight session. Overall declines were limited by strength in tech and financial stocks.
"We started out a little weak, and then we had a nice little rally, but the buyers were already in and there was no place for stocks to go but down," said Tom Schrader, head of U.S. listed trading at Stifel Nicolaus. "It's indicative of the late stages of a bull market. We've had a tremendous move, and it's time for us to have a little pause or a pullback of about 3% to 5% in the market."
"I think the market is starting to worry a little bit about the summer," Schrader added. "At some point the higher energy prices are causing the consumer to pull back. If (hurricane season) was like two years ago, you're going to see gasoline not at $4 a gallon but at $5 and that's going to put a hurtin' on the consumer."
For the second straight day, the S&P 500 index moved above its all-time closing high of 1527.46 but failed to hang on to gains by the close. The Dow Jones Industrial Average also hit an intraday record but closed down about 3 points. The Nasdaq Composite ended higher for the second straight day.
Among other closely watched indexes, the S&P MidCap 400 and the Russell 2000 index of small cap stocks each closed at record highs.
Breadth was mildly positive with advancing stocks slightly outpacing declining stocks. Seven of 10 S&P 500 sectors traded higher as a turnaround in the heavily-weighted financials and technology sectors helped lift the markets. The energy sector was a notable laggard as the group turned lower to coincide with a pullback in crude oil prices.
"Nothing really looks dramatically wrong on the horizon, which is worrying in itself," said Rob Sellar, head of North American equities at Aberdeen Asset Management. "With interest rates low and unemployment OK, it's really difficult -- outside of a dramatic falloff in earnings -- to see what's going to upset the apple cart."
Investor sentiment got a boost from more takeover activity.
"M&A is really the big positive for this market and the reason why you have to stay in it," said Hugh Johnson, chief investment officer at Johnson Illington Advisors. "There's enough money to drive the economy and the markets and it shows up in all of the liquidity in the hands of private equity."
Shares of gaming companies rose on news of a potential deal in the casino industry. MGM Mirage surged after billionaire Kirk Kerkorian's Tracinda said it would explore strategic options for its majority stake in MGM and enter talks to purchase the company's Bellagio Hotel and CityCenter properties. Wynn Resorts and Las Vegas Sands closed higher on the news.
Gains in shares of Intel helped fuel gains in the Nasdaq after the chip bellwether said itwas combining its NOR flash memory card business with European chipmaker STMicroelectronics and a private equity firm. Intel's 1.6% gain led Dow 30 components.
Fremont General said was is selling its subprime loan business to iStar Financial for $1.9 billion, sending Fremont shares up more than 40%.
AutoZone, the largest U.S. auto parts retail chain, posted a 5% rise in quarterly earnings Tuesday as sales at existing U.S. stores edged higher. Net income increased to $151.6 million, or $2.17 per share, in its fiscal third quarter ended May 5. Analysts, on average, expected AutoZone to report earnings of $2.15 a share, according to Reuters Estimates.
Staples said first-quarter earnings rose 12%, helped by growth at its international business. However, the office supplies retailer saw some weakness at its North American stores. Although the company reiterated its forecasts, it warned earnings per share in the second quarter might fall at the low-end of its estimates.
New York light sweet crude futures fell more than a dollar after rising above $66 a barrel in the previous session on worries about gasoline supply in the U.S.
Treasury prices fell, sending yields higher.
European Stocks Close Mixed, Asia Ends Mostly Higher
European stock markets closed mixed as another round of merger news was offset by negative corporate news. Stocks in Asia closed higher, with the exception of Hong Kong, and China ended at another record high.
The major Euro stock indexes were split as the London FTSE-100 closed with a loss of 0.5%, the Paris CAC-40 ended flat and Germany's DAX posted a 0.5% gain.
On the M&A front, analysts said Warner Music is likely to increase its offer for rival music group EMI after the latter agreed on Monday to be acquired by private equity firm Terra Firma for $4.7 billion.
British Airways is also pushing for an acquisition, backing a private equity consortium making a play for Spanish airline Iberia. The group has already made an informal bid for Iberia worth about $4.6 billion. BA currently owns 10% of the Spanish airline and has said it would not increase its stake or make an independent bid.
Shares of British drugmaker GlaxoSmithKline fell on fears from industry analysts that potential product liability claims over Avandia, a diabetes treatment, could hurt the London listed pharmaceutical’s bottom line.
Tokyo's Nikkei 225 Average as exporters such as Sony continued its rally and Sumitomo Mitsui Financial Group jumped on its bright forecast, helping other bank shares to rise. Takeda Pharmaceutical rose on speculation that sales of its diabetes drug Actos could see a jump in sales in the wake of the negative Avandia study.
In South Korea, the Kospi Index finished higher to hit a second record in a row as builders such as Daewoo Engineering surged on government plans to create a new satellite city, while Samsung Electronics rose ahead of the June listing of a credit card affiliate.
The Shanghai Composite Index rose about 1% to close at a new high after investors were encouraged by a high-ranking finance official's comments the government was unlikely to interfere directly in the market.
Hong Kong stocks surrendered early gains after investors locked in profits in recent advancers such as China Life as the market topped the 21,000 level. But CNOOC led oil producers higher, thanks to higher crude prices.