Stocks finished slightly lower Wednesday as the financial-driven rally that kicked off the quarter Tuesday lost steam. Energy, retail and chips finished mostly higher.
"This follows a very similar pattern all year where on any big one-day move, like we had yesterday, there has been failure to have any kind of follow on," said Hank Smith, chief investment officer at investment-management firm Haverford in Philadelphia.
"I don't think we should be surprised by this," Smith said. "It's the other way around -- if we had another triple-digit point day ... THAT would be a surprise."
One of the big culprits was a late-session jump in crude prices, which settled just shy of $105 a barrel on the New York Mercantile Exchange.
Energy stocks advanced, with the S&P 500 energy index finishing up 1.2 percent, the biggest gain among 10 key S&P sectors. Earlier, the EIA reported that crude inventories unexpectedly roselast weekby 7.4 million barrels, more than three times the expected increase, to 319.2 million barrels.
Oil's increase plus Federal Reserve Chairman Ben Bernanke's warning that a mild recession is possible raised concerns about consumer spending heading into the summer travel season.
That sapped earlier gains in retail stocks, which finished mixed. Electronics retailer Best Buy had given a boost to the sector after reporting its net declined but beat expectations. Same-store sales slipped 0.2 percent as a decline in U.S. sales offset strength overseas.
Homebuilders, which have been among the leading gainers this year, closed mixed amid skepticism that measures announced by the Senate to provide relief to the housing marketwould have any practical effect.
A Reuters/Bridge index of homebuilders has jumped nearly 30 percent this year, led by gains of more than 70 percent (year to date) in shares of land developer AMREP
Even home-improvement retailers are benefiting from a turnaround, with shares of Home Depot touching $30 a share, up 20 percent from where it was a month ago. Lowe's is up about 15 percent in the past few weeks.
As for Wednesday's market action, most homebuilders retreated, but Centex and KB Homes finished higher.
Chip makers were up all day, even as the broader market sputtered. The Philadelphia Stock Exchange semiconductor index closed up 0.8 percent.
Micron Technology shares jumped 6.5 percent in regular trading. After the closing bell, the largest maker of flash-memory chips reported its loss widened amid a slump in chip prices. Micron's loss ballooned to $777 million, or $1.01 a share, from $52 million, or 7 cents a share, a year earlier. Revenue fell about 5 percent to $1.36 billion.
American depositary shares of Research In Motion skidded 1.4 percent ahead of the Canadian company's earnings -- which beat expectations -- after the closing bell. The company, which makes the BlackBerry e-mail device, reported fiscal first-quarter earnings of 72 cents a share, topping the high end of its range -- and analysts' forecasts -- by two cents. The company added 2.18 million new subscribers, the top end of analysts' range. The company also projected earnings of 82 to 86 cents a share for the fiscal first quarter, well above analysts' forecast of 76 cents a share.
Apple's iPhone , while dazzling, isn't yet considered serious competition for the BlackBerry in the corporate world as it lacks security features that the BlackBerry has and it uses a lot more bandwidth.
General Motors was the top gainer on the Dow Jones Industrial Average. The auto maker a day earlier posted a 19 percent decline in March auto sales but said it expects the U.S. economy to recover in the second half. In a conference call following the monthly sales report, GM sales analyst Mike DiGiovanni said he saw "early signs" that the U.S. market was steadying.
Merck was the biggest drag on the Dow as the pharmaceutical giant continued to reel from news that its joint cholesterol drug with Schering-Plough , Vytorin, showed no signs of working better than a cheaper generic statin.
Bernanke had some encouraging comments for the financial sector.
The Fed chairman said he doesn't see any other investment banks suffering the same fate as Bear Stearns. In defending the central bank's decision to jump in to bail out Bear Stearns, Bernanke said the Fed felt it had no choice as the investment bank's outright collapse would've rippled through the financial sector and markets.
"Normally, the market sorts out which companies survive and which fail, and that is as it should be," Bernanke said in prepared remarks delivered to the congressional Joint Economic Committee. "However, the issues raised here extended well beyond the fate of one company." (Read the full textof Bernanke's testimony.)
Overall, financials finished mixed, with the S&P 500 financial index off 0.7 percent.
"There is still fear [with financials] because investors that tip-toed in over the past four or five months hoping to get in at the bottom have been burned," Smith said. But, "proper steps have been put into place to help unfreeze the markets, regain liquidity and regain confidence," he said.
Analysts are closely watching Merrill Lynch and Citigroup amid increasing nervousness about the banks' upcoming earnings reports. Analysts have lowered their forecasts for both in recent weeks. In the latest Wall Street job-cut news, Merrill Lynch is planning to pare 10 to 15 percent of its nonbroker work force, CNBC has learned.
Among regional banks, Ohio's National City, which has been battered by the housing downturn, is considering a plan to sell itself to local rival KeyCorp , according to the Wall Street Journal.
But Punk Ziegel analyst Richard Bove raised concerns about the viability of a deal involving National City. In a note to clients, the analyst pointed out that 1) KeyCorp is the smaller of the two and 2) National City would have to take a significant write-off to clean up its balance sheet for any potential sale. Bove cut his price target on National City to $10.50 from $18.50.
Fannie Mae , the largest U.S. home funding company, told lenders this week that it will now require a minimum credit score of 580 for most loans, according to a report in the Wall Street Journal.
Shares of Thornburg Mortgage skidded after RBC Capital cut its price target on the stock to 50 cents from $1. The Wall Street Journal reported that Thornburg plans to resume making loans "within weeks if not days" after narrowly averting bankruptcy.
In economic news, ADP Employer Services reported that 8,000 jobs were added to private-sector payrollsin March.
The ADP report comes ahead of Friday's employment report from the Labor Department. The consensus is for nonfarm payrolls to have dropped by 60,000, following a 63,000 decline in February, and for the unemployment rate to tick up to 5 percent from 4.8 percent.
Separate reports released Wednesday showed planned layoffs by U.S. companies fell 26 percent in March from the prior month, mortgage applications plunged last week, and factory orders fell 1.3 percent, more than expected, in February.
In other earnings news, agriculture giant Monsanto reported its fiscal second-quarter profit soared but its outlook range -- now $3.15 to $3.25 a share -- began to slide below analysts' expectations.
Still to Come:
THURSDAY: Jobless claims; ISM services index; Hearings on JPMorgan/Bear Stearns deal
FRIDAY: Jobs report
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