Stocks recovered from earlier losses to finish flat Monday in a volatile session riddled with weak economic data, big auto-sales declines and concerns about more fallout from the housing slump.
The Dow Jones Industrial Average finished a few points lower, after being down about 100 points just one hour before the closing bell. The tech-heavy Nasdaq also closed a few points lower, while the S&P 500 index just barely crossed the line to close in positive territory.
Financials led decliners in the S&P 500 index. Mortgage lender Thornburg Mortgagesaid it has failed to meet a surge in margin calls, raising concern that the jumbo mortgage lender might file for bankruptcy.
Shares of Bank of America, the largest U.S. bank by market value, declined after Countrywide Financial, which agreed to be purchased by Bank of America for about $4 billion, said it may record more credit losses as delinquency rates increase.
Several firms slashed their price targets and earnings outlooks for brokerage firms, including Bear Stearns , Goldman Sachs and Lehman Brothers .
Bank of America and RBC cut their price targets on Apple, citing lower estimates for sales of iPhones and iPods amid weak consumer spending, but kept their "buy" and "outperform" ratings, respectively.
Apple's shareholder meeting is scheduled for Tuesday.
Elsewhere in the tech sector, Piper Jaffray cut its rating on the Internet sector to "neutral" from "positive," saying that earnings estimates are at risk.
Google, which has lost a third of its value in 2008, dropped about 4 percent Monday as analysts noted the stock is rapidly approaching its 52-week low of $437.
The market has made some attempts at rallying today, with little conviction. Some analysts say we may have already seen the bottom of this downturn but Brian Gendreau, investment strategist for ING Investment Management, isn’t convinced. “I don’t think there’s been complete capitulation yet,” Gendreau said.
Right now, the market is just looking for good news, Gendreau said, though it’s not clear what that will be. “It’s not gonna be the Fed,” Gendreau said, adding that the market has already priced in 2 percent interest rates by May. “It may be the next earnings season,” Gendreau said, “if earnings reports come in still stronger than priced in.”
Gendreau, like many analysts, says there are some bargains to be had in the technology and health-care sectors, as well as among exporters.
Earlier, Philadelphia Federal Reserve President Charles Plosser sent a little shiver through the market when he said that U.S. financial turmoil is enough for the Fed to lower interest rates but the central bank should be ready to begin raising interest rates when the economy stabilizes.
Perennial bull Ed Yardeni also kicked up some dust when he wrote, in a note to clients, that the business cycle has already peaked and February was probably the first month of recession.
Boeing was the top decliner on the Dow after the company lost a $40 million U.S. Air Force contract to rival aircraft maker EADS and its U.S. partner, Northrop Grumman . The contract, to build military refueling planes, was one of the biggest Pentagon contracts in decades.
Energy stocks advanced after crude oil hit another high, topping out at $103.95 a barrel, before settling at $102.45 a barrel. ExxonMobil and Chevron were among the Dow's advancers.
Auto makers declined after General Motors and Ford Motorreported double-digit U.S. sales declines and both cut second-quarter production.
GM, the No. 1 U.S. auto maker by sales , reported February sales fell an adjusted 16 percent, in line with analysts' projections. Without an adjustment for the number of selling days, GM sales were down about 13 percent. A lot of that came from a more than 22 percent drop in light truck sales, reflecting the fact that consumers are moving away from trucks and big gas-guzzling SUVs as gasoline prices surge. GM car sales declined 5.2 percent. GM also said it would cut second-quarter production by 5 percent.
Earlier, Citigroup cut its rating on General Motors to "sell" from "hold."
Ford , which doesn't adjust for the number of selling days, reported its sales were down nearly 7 percent in Februaryfrom a year earlier, roughly half of the more than 14 percent decline many analysts had expected. The company, which got bumped out of the No. 2 spot for U.S. auto sales by Toyota last year, also said it planned to cut back second-quarter production by 10 percent and that it would eliminate a shift at four plants, resulting in 2,500 layoffs.
Ford sales were helped by a 36 percent increase in sales of Ford Focus as fuel-efficient small cars are increasingly appealing to younger buyers, Ford said. Overall, Ford car sales were down 9.3 percent, while truck sales fell 5.6 percent.
Earlier, Japanese auto maker Toyota reported sales fell 2.2 percent last month. Adjusted sales, which account for an extra day in February, declined 6.6 percent.
Incentives in the U.S. auto industry jumped 17 percent in February from January, offering consumers hope that weak demand has resulted in some pretty good deals, industry-tracking service Edmunds.com said Monday.
"It's a car buyer's market," Edmunds.com analyst Jesse Toprak said, "and that will likely be true for months to come."
The dollar recovered somewhat after a reading on manufacturing came in better than expected. The euro was trading at $1.5199 against the dollar Monday afternoon, after earlier touching as high as $1.5276.
In economic news, the Institute for Supply Management reported its gauge of manufacturing fell to 48.3in February from 50.7 in January. Economists had expected a reading of 48, and some feared even worse after the Philadelphia and Empire State regional reports. Any reading below 50 indicates contraction in the sector, though to suggest contraction in the broader economy, the reading would have to be down near 41 or 42.
"The strength of exports is keeping manufacturing going," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients, "but the intensifying weakness of domestic demand is causing increasing problems." Overall, he said, "the ISM is now in the no-man's land between weak growth and recession, but the problems elsewhere in the economic point more to the latter."
Construction spending, which plugs into GDP, dropped 1.7 percent in January, wider than December's 1.1 percent decline and the 0.7 percent economists had expected.
Warren Buffett, speaking on CNBC television on Monday, said the U.S. economy is in recession and that "stocks are not cheap."
"I would say, by any common-sense definition, we are in a recession," Buffett said. "We haven't had two consecutive quarters of [negative] GDP growth, but I will tell you, on balance, most people's situations, certainly their net worth, has been heading south now, for a considerable period of time." He restated, however, his view that over the long-run the U.S. economy will do fine and that each generation will live better than the one before it.
As for stocks, Buffett told CNBC's Becky Quick that, while stocks are "not cheap" now, they're not extreme, either. He says he's waiting for when stocks become "very cheap."
Buffett also said he is taking off the table an offer to guarantee $800 billion of municipal bonds backed by troubled bond insurers MBIA, Ambac Financial Group and FGIC. (Read a blog of the CNBC interview with Buffet.)
Meanwhile, CNBC has learned that a group of banks planning a bailout for Ambac may be willing to leave the bond insurer with a single "triple-A" credit rating." In the past, the bank consortium had wanted two triple-A ratings.
Shares of Diebold surged after Dow component United Technologies on Sunday madeanunsolicited $2.64 billion bid for the ATM maker, after trying for two years to merge with the company.
United Technologies, the world's largest maker of elevators and air conditioners, said Diebold would make an "excellent fit" due to its "strong market position, U.S. footprint, and balance between product and service revenues."
Major home builder Hovanian will report earnings after the bell. Builder stocks have taken a beating as the real estate market has slumped, but Hovanian shares are up more than 21 percent in 2008 as the entire sector has made a strong comeback.
TUESDAY: Staples earnings; Apple shareholder meeting; Ohio, Rhode Island, Texas and Vermont primaries
WEDNESDAY: Factory orders; ISM services index; Fed beige book; Pfizer and Intel analyst meetings
THURSDAY: Weekly jobless claims; Retailers' Feb. sales reports; ECB and BOE rate decisions; Disney shareholder meeting
FRIDAY: February jobs report
Send comments to Cindy.Perman@nbcuni.com.