Stocks closed mixed on Monday as strength in tech stocks was overshadowed by investor concerns ahead of earnings season.
"Maybe the market got overexuberant when the Fed rates cut and expect the Fed magic to make things good," said David Spika, investment strategist at Westwood Holdings Group.
"But at the same time, the market's a pretty good indicator of future growth and I think the market is telling us that earnings are probably going to surprise on the upside and things aren't as bad as we might think they are," Spika added.
U.S. bond markets were closed due to the Columbus Day holiday and equity trading volume was light as investors largely sat on the sidelines.
"The subprime bogeyman didn't get us after all; all the worries of July and August are behind us," said Andrew Kanaly, chairman of Kanaly Trust. "The past several years earnings have been underestimated and they are going to be underestimated again, so we're looking for earnings surprises in this season once more."
U.S. light sweet crude futures closed well below $80 a barrel on the New York Mercantile Exchange as the dollar strengthened. It was the lowest closing price for crude since Sept. 11 and biggest one-day decline since Aug. 16. High energy prices are seen as a drag on economic growth and consumer spending.
"We had a big run-up, so we may give some of that back with some profit-taking," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "The brokerage actions are an expression of caution in advance of earnings."
Merrill Lynch shares fell after two brokerages downgraded the stock in light of the company's warning last Friday it would take a loss in the third quarter.
and and Bank of America could also be in the spotlight after the Financial Times reported that the banks were likely to disclose losses of about $3 billion in mortgage securities and leveraged loans.
Google smashed through the $600 level, closing at a new record high. The stock was buoyed by optimism about the strength of the Web search firm's advertising technology and a view that tech shares will benefit from greater business spending.
Aluminum producer Alcoa , a Dow component, unofficially opens the season for reporting third-quarter earnings on Tuesday. Investors are focused on how the economy and profits are holding up in the housing slump.
In retail news, private equity firm Apax Partners is preparing to float U.S. clothing label Tommy Hilfiger with a price tag of up to $3 billion, the Financial Times said.
In the tech sector, Oracle's threat to close the gap with German rival SAP became obvious when SAP, a long-time advocate of organic growth, announced it agreed to buy Franco-American software firm Business Objects for $6.8 billion.
SunTrust Robinson Humphrey cut its rating on shares of consumer products maker Procter & Gamble to "neutral" from "buy." Shares of P&G, a Dow component, traded lower on Monday.
Progress Energy said CEO Robert McGehee suffered an apparent stroke on Oct. 7 in London and remains in intensive care in a London hospital, the company said in a statement on Monday.
Asian markets finished mixed, with South Korea closing at a new record while China reached record peaks. Trading volume was thin with Japanese markets closed for a holiday. European stocks were trading lower.
Elsewhere in the financial sector, U.S. investment bank Citigroup is planning to help stricken U.K. mortgage bank Northern Rock remain independent by arranging a consortium of bidders to bail it out or by directly offering it a loan, newspapers reported at the weekend.
And the first strategic investment by a mainland Chinese bank in a U.S. bank was announced by Minsheng Banking, which will buy 9.9% of San Francisco-based UCBH Holdings for over $200 million.
Looking to the economy, market expectations of a new rate cut from the Federal Reserve at the end of the month may be dampened down, economists said, as Friday's nonfarm payroll data showed the U.S. economy was more resilient than many had feared.
Evidence of a hard landing of the economy in the wake of the credit crunch is "scant," Kevin Gaynor, head of economy and rates research at RBS told "Worldwide Exchange."