Stocks finished with modest gains as oil dropped modestly, continuing their almost-perfect inverse relationship on a day that also saw the further resurgence of the dollar and solid gains in technology.
The Nasdaq was the day's star, closing above a 1 percent gain while the Dow and the S&P 500 both registered up slightly after being considerably higher earlier in the session. The positive day helped continue the momentum from last week's big rally.
In all, it was a fairly steady day on Wall Street amid sentiment that the recent surge in stocks was merely the byproduct of a typically violent bear rally.
"It's not the light at the end of the tunnel, but it's also not the train coming to kill you," said Randy Carver, president of Carver Financial Services. "There's no panic and there's no euphoria, which is good."
Oil fell more than $2 at one point and settled at $114.45, primarily as the dollar rallied and more signs emerged of demand slowdown.
Stocks slid off their highs, primarily due to weakness from financials.
Fannie Mae shares tumbled after an analyst at FBR Capital Market said the mortgage giant would need to raise $5 billion to $10 billion more in capital to strengthen its balance sheet. Conversely, Fox-Pitt said Fannie would have to undergo some $54 billion in losses over the next six quarters for its minimum capital requirements to be endangered.
The financial sector's woes are far from over, as five of North America's largest credit unions are reporting big paper losses on mortgage-related securities, a sign that housing-market distress is spreading even to the most risk-averse financial sectors, the Wall Street Journal reported.
The sector was broadly lower as concerns over the mortgage industry continued to weigh on the market.
Fannie's chief competitor, Freddie Mac also saw shares dive after Standard & Poor's slashed the preferred stock ratings for both government-sponsored enterprises.
The skittishness of stocks and their inability to hold higher levels despite oil's weakness and the dollar's strength had analysts cautious about the market's prospects.