Stocks turned mixed Monday, the second day of trading in the new year, as a construction report came in much better than expected, as did U.S. auto sales.
Stocks started off the day sharply lower as investors cashed in some of their chips after last week's rally that pushed the Dow up more than 6 percent and past the key 9,000 mark.
Construction spending fell by half of what was expected— 0.6 percent, compared with 1.2 percent — in November, which helped the market shave some of its losses. The prior month was also revised sharply higher, to show a drop of 0.4 percent compared with the initial estimate of a 1.2-percent decline.
The S&P 500 and Nasdaq pressed higher, though the Dow Jones Industrial Average remained stubbornly lower, dragged down by telecoms.
General Motors was the biggest gainer on the Dow after the auto maker reported its sales fell 31.4 percent, less than expected, in December.
Ford shares also rose sharply after the company said its sales fell 32.4 percent.
Economists had expected to see much worse — a 40-percent decline from auto makers.
Verizon and AT&T were the top decliners on the Dow after Bernstein Research downgraded the stocks, saying the wireless-communication market is near saturation and that, coupled with slowing subscription rates due to the recession, could mean a sharp slowdown for the sector.
Shares of General Electric fell more than 1 percent after a Sterne Agee analyst said GE's triple-A credit rating or its dividend "looks likely to be reduced" this year. Though, he clarified that it probably wouldn't be until the company, which is the parent of CNBC, reports first- or even second-quarter earnings.
Investors will be watching closely as President-elect Barack Obama's stimulus plan takes shape.
Obama is meeting with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid today to discuss the plan. Obama is seeking as much as $310 billion in tax cuts, which would account for roughly 40 percent of the plan, to win support from Republicans.
Meanwhile, Obama's quest for a smooth transition hit its first snag Sunday as New Mexico Gov. Bill Richardson withdrew his nomination for commerce secretary amid a legal inquiry in his home state over a company that made a campaign contribution and later won a big state contract.
As the market was searching for direction in the new year, market pros were optimistic.
"[T]he equity markets can trade up — maybe about 20 percent" this year, Phil Dow, of RBC Wealth Management, told CNBC. "The key to this is going to be massive government fiscal and monetary stimulus, which eventually reinstitutes the profit motive in America," he said, adding that RBC pegs the turn around mid-year.
Asian stocks hit a two-month high as appetite for risk seems to have returned, while European shares were also higher on hopes of tax cuts from a stimulus package in Germany.
Apple shares advanced as MacWorld kicked off and CEO Steve Jobs revealed in a letter to the Apple Community that his weight loss is due to a hormone imbalance.
Elsewhere in tech land, Microsoft will embark on a significant cost-cutting initiative in 2009, which might begin as early as this month, to counter effects of a slowdown in sales. However, reports on various blogs of 15,000 job cuts are "grossly exaggerated," Microsoft sources told CNBC.
Shares of Amazon skidded even as JPMorgan upgraded its rating on the online marketplace to "overweight" from "neutral." Amazon has said that the 2008 holiday season was its best ever, and JPMorgan also gave the company high marks for its efforts to grow sales outside its core business.
Meanwhile, Google has come under fire in China, where government officials are blasting the search engine behemoth for not doing enough to crack down on pornography, which is banned in the country.
Energy stocks were mixed, with Chevron up and ExxonMobil down, as oil prices slipped following a rally last week.
Pfizeris mulling buying a large drug company to improve its financial health, bucking the trend among its peers, which have turned against the "mega-mergers" of the past, according to a report by the Financial Times.
Tyson Foods shares fell sharply as CEO Dick Bond said he was stepping down from the No. 1 U.S. meat company, effective immediately. Leland Tollett, who was chairman and CEO from 1995 to 1998, will step in as interim president and CEO until a successor is chosen.
The Financial Services Committee will question the SEC's internal watchdog Monday, as lawmakers try to learn why the regulatory agency failed to detect an alleged $50 billion investment fraud by Bernie Madoff.
Meanwhile, bleak warnings continued to gather on the economic horizon.
Economist Martin Feldstein told CNBC the economy could be in worse shape in a year, while former under secretary for international affairs John Taylor warned the explosive growth of the Federal Reserve's balance sheet since September was "unbelievable" and could lead to the Fed losing independence.
Construction spending data will be released at 10 am New York time, and analysts surveyed by Briefing.com expect it to have contracted by 1.2 percent in November last year.
MONDAY: Congressional hearings on Madoff case begin; Obama to meet with Pelosi on stimulus plan; auto sales; MacWorld begins (Jan. 5-9)
TUESDAY: ISM services index; factory orders; pending-home sales
WEDNESDAY: Weekly mortgage applications; ADP employment report; weekly crude inventories; Earnings from Constellation Brands, Family Dollar, Monsanto and Bed, Bath & Beyond
THURSDAY: ECB and BOE rate decisions; Chain-store sales; weekly jobless claims; consumer credit; Consumer Electronics Show begins (Jan. 8-11)
FRIDAY: Jobs report; wholesale trade; Earnings from KB Home
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