Stocks closed mixed in thin trading Tuesday as the tide turned in technology's favor. Airline stocks rose as oil prices receded below $116 a barrel.
"People were chasing oil and gold for a while, but that got old," said Matt Cheslock, senior specialist at Cohen Specialists. "Big techs are the focus -- that's where the momentum is right now," he said. "They're selling commodities and buying banks and beaten-down techs."
"There hasn't been a new wave of cash into the market -- this is just redeploying cash that's out there," Cheslock said.
Among notable tech gainers, Google and Apple gained more than 1 percent, while BlackBerry maker Research In Motion jumped more than 3 percent.
IBM rose 1 percent after the company announced it was raising its dividend by 25 percentto 50 cents a share. This is 13th straight year that IBM, the world's largest computer-services company, has increased its payout to shareholders. Just two weeks earlier, IBM reported better-than-expected earnings and raised its 2008 outlook.
Yahoo rose 3 percent amid "signs of willingness among traders to position for a conciliatory break higher in Yahoo shares," said Rebecca Engmann Darst, an equity-options analyst at Interactive Brokers. A break in the "silent standoff" is expected any day now since Microsoft's deadline came and went this weekend without a peep from Yahoo. Microsoft shares fell 1 percent.
Still, jitters ahead of the Federal Reserve's decision on interest rates kept a lid on trading. All three major indexes -- the Dow Jones Industrial Average, S&P 500 and Nasdaq -- remained within half a percentage point of their previous close.
The Fed kicked off its two-day meeting Tuesday. The market is pricing in about an 80-percent chance of a quarter-point rate cut to 2 percent when the Fed issues its decision on Wednesday, according to fed-funds futures contracts.
The two most likely outcomes the market expects are: 1) a final quarter-point cut and an indication in the statement that this cycle of cuts is over, and 2) that the Fed will hold steady.
Still, some Fed watchers say Wall Street may be too optimisticthat the Fed is done cutting rates.
Crude oildropped more than $3 to settle at $115.63 a barrel, after pushing $120 in the previous session, as worries about supply disruptions subsided.
"Oil is getting quite frothy," Cheslock said, referring to the fact that there is now $30 or $40 in excess speculation on the price, far above the typical $5 to $10 to cover geopolitical risk. "When traders see oil down $3.50 heading into a Fed meeting, that's a good sign."
Oil's fall put wind beneath the wings of airline stocks, which rose more than 2 percent. Delta rose more than 10 percent and Northwestwas up nearly 20 percent.
Despite oil's slide, Chevron jumped 2.4 percent, making it the best performer on the Dow, after Goldman Sachs upgraded its rating on the integrated oil sector to "attractive" from "neutral," saying risk/reward was most favorable for the "super majors" such as Chevron and ConocoPhillips .
Merck shares plunged more than 10 percent, making it the biggest decliner on the Dow, as several analysts lowered their price targets and earnings estimates for the drug maker after the FDA unexpectedly rejected Merck's Cordaptive, saying it needs more information on the drug. Cordaptive is seen as a key to Merck's cholesterol franchise.
Shares of Genentech and Biogen skidded 7.1 percent and 5.2 percent, respectively, after the biotech companies said studies showed their drug Rituxan didn't meet its primary goal of helping patients with lupus, a disease affecting the immune system that can be fatal.
Bank and homebuilder shares declined after a pair of dismal reports. The Dow Jones home-construction index fell 0.8 percent, while the S&P financial index was down 0.6 percent.
U.S. home prices extended their slumpin February, with 17 of the 20 measured regions posting record annual declines, according to a report from Standard & Poor's/Case Shiller. A separate report showed home foreclosure filings jumped 23 percent in the first quarter from the prior quarter and more than doubled from a year earlier, according to real-estate tracker RealtyTrac.
In other economic news, the Conference Board's consumer-confidence gauge dropped to 62.3, a five-year low,in March from 65.9 in April. However, that was slightly better than the 61-62 range economists had expected.
On the earnings front, U.S. credit-card companies posted strong results as consumers increasingly pay with plastic instead of cash and checks.
MasterCard shares shot up 13 percent after the Purchase, NY, company said its first-quarter earnings more than doubled, surpassing expectations, helped by the weak dollar and an increase in the number of cards outstanding.
Rival Visa also blew past forecasts with its earnings, the San Francisco company's first as a public company, reported after the bell Monday. Shares rose 7 percent.
Food and ethanol producer Archer Daniels Midland beat analyst expectations with a profit of 80 cents per share against analyst predictions of 70 cents per share, up from 51 cents a year earlier.
CBS shares rose 2.9 percent after the company surpassed earnings estimatesand raised its dividend by 8 percent.
"To be honest, I think the market right now is trading more on some of the positive earnings surprises we've had than on the Fed," said Cleve Rueckert, a research analyst at Birinyi Associates, noting that S&P 500 earnings are up over 10 percent so far, excluding financials. (See a list of biggest S&P earnings surprises to date.)
Wal-Mart shares rose 2.2 percent after the discount retailer said it would cash tax-rebate checks for freewith no purchase required. Checks began arriving this week, earlier than had been expected.
Major oil companies dominated earnings news from Europe, with Royal Dutch Shell blowing past forecasts thanks to record-high oil prices. BP also beat expectations. In the financial sector, Deutsche Bank reported its first quarterly loss in five years.
This Week:
WEDNESDAY: Fed rate decision (2:15 p.m. ET); first read on Q1 GDP; mortgage applications; Chicago PMI; weekly crude inventories; earnings from GM, Kraft, Kellogg, P&G, Time Warner, Prudential and Starbucks
THURSDAY: Monthly auto sales; jobless claims; personal income and spending; ISM manufacturing index; construction spending; earnings from Kodak, ExxonMobil
FRIDAY: April jobs report; factory orders; earnings from Chevron, Viacom
Send comments to cindy.perman@nbcuni.com.