Stocks closed mixed as weak housing data was offset by better-than-expected auto sales from GM and sustained expectations for additional rate cuts by the Federal Reserve.
"This is such a strong market," said David King of Putnam Investments. "Even in the face of those weak earnings reports out of Citigroup and UBS (on Monday) a lot of people were telling me they saw foreign money coming into the market."
"I think with liquidity back in the market you'll still see volatility but you're more likely to see more up days and fewer down days," Doll said.
General Motors said sales of vehicles in the United States rose nearly 4% in September as incentives on its pickup trucks helped sales growth, which came in well above the consensus forecast of 1%. The company reported U.S. sales of 337,640 vehicles last month, up from 255,274 vehicles in the same period last year.
"I think the market is flashing had a pretty big neon buy signal right now," said Bill Knapp, chief investment strategist with MainStay Investments. " If you think about where earnings are going to go over the next few quarters, valuation looks pretty good at 14,000 when you think about the fact that a year from now the Dow could be flirting with 16,000."
The markets managed to rebound from earlier selling pressure due to a surprise drop in existing home sales. Pending sales of previously owned homes fell in August by three times the decline predicted by economists as borrowers were being increasingly turned away by cautious lenders, according to the National Association of Realtors.
Separately, Morgan Stanley said it will restructure its residential mortgage business and cut some 600 employees in a move that "reflects current market conditions."
U.S. Treasurys edged higher on expectations the ongoing housing downturn will prompt the Fed to again lower interest rates. The dollar rose from record lows against the euro and a basket of currencies on profit-taking as investors trimmed recent bets against the greenback.
"We think the Fed has plenty of room to continue to cut rates and that allows for liquidity in the marketplace," said David Doll, president of Kanaly Trust, "and with hedge fund redemptions coming up, liquidity is going to be key."
U.S. light sweet crude futures continued their recent slide, ending just above $80 a barrel on the New York Mercantile Exchange. While declining oil prices weighed on shares of Exxon Mobil, Chevron and ConocoPhillips, it was translated as a positive for the overall market because of lower consumer energy costs.
"I think there is real concern about consumers and the health of the economy," said Gina Sanchez, portfolio manager at The California Endowment. "As the consumer balance sheet starts to work itself out and we start to feel the real impact of the housing slump, we'll start to see that in consumption and then earnings, but that's a long process."
"I think the market is pricing in future interest rate cuts; the concern is that if the Fed does nothing in October we might see a bit of a pullback," added Sanchez.
In corporate news, Canada's Toronto-Dominion Bank said it will buy Commerce Bancorp in a cash-and-stock deal worth $8.5 billion.
Niklas Zennstrom stepped down from Skype, the company he co-founded and sold to eBay in 2005 for $3.1 billion. The chief executive of the Internet telephony division of eBay accepted a smaller payout ahead of schedule as eBay wrote down the value of business.
In earnings news, Pepsi Bottling Group , the largest bottler of drinks made by Pepsico , reported higher quarterly profit and raised its full-year outlook.
Shares of handheld computer maker Palm fell after the company reported a net loss for the first quarter on Monday.
Shares of Ciena rose more than 8% after the network equipment maker provided rosy guidance at a meeting with analysts on Tuesday.