Major indexes finished higher after a yo-yo session Monday, with banks ending mixed after several attempts at a rally.
"For every step of positive news, we take two steps back," said Quincy Krosby, chief investment strategist at The Hartford.
Stocks wobbled out of the gate then took off, led by banks after they got a shot in the arm from overseas and amid expectations of stimulus from Washington. The market also got a boost from a blockbuster pharma deal, which helped overshadow a gloomy outlook from Caterpillar and other earnings worries. An afternoon dip gave way to a final-hour rally that propped up major indexes.
The Dow Jones Industrial Average gained about 0.5 percent, while the S&P 500and Nasdaq each rose about 0.8 percent.
One of the market's biggest boosts today came from Pfizer, after the drug giant agreed to buy rival Wyeth for about $68 billion, or $50 a share.
"A strong, positive signal for the market is the Pfizer deal," Krosby said. "Deal flow is important for markets."
However, both stocks finished lower, with Pfizer anchoring the bottom spot on the Dow and shedding 10 percent. Wyeth lost 0.8 percent.
Banks got a boost from UK bank Barclays , which said it wouldn't seek more capital and that it is profitable and from Dutch financial group ING, which said it was taking a $1.3 billion loss, tapping into a Dutch government loan guarantee and cutting 7,000 jobs.
That came on the heels of a rally in tech and bank stockson Friday, which capped a dismal week that included the worst inauguration day sell-off in history and shaved 2.5 percent off the Dow.
After climbing to the top of the Dow ladder, then falling back down, Bank of America, Citigroup and JPMorgan ended mixed.
"It's still a traders' rally," Krosby said. "Any time there's any news out of Washington that looks like a deal might be in the offing — like Obama working with Republicans — these stocks rise. You're trading on the headlines right now — No one wants to be short if positive news comes out," she said.
Home Depot planted its flag atop the Dow, gaining 4.7 percent, after the home-improvement retailer beat earnings expectations and said it would cut 7,000 jobs from its payrolls.
General Electric shares locked in the No. 2 spot on the Dow, rising 3.2 percent, after Standard & Poor's said the conglomerate's 44-percent drop in profit won't affect its top-tier credit rating. GE is the parent of CNBC.
But Caterpillar shares tumbled more than 9 percent after the company missed fourth-quarter estimatesand said it was facing difficult times ahead, requiring a cut of 20,000 in its workforce.
McDonald's shares managed a small game after the fast-food giant reported a drop in quarterly profit but beat expectations.
CAT and McDonald's were just the first of 11 Dow components reporting earnings this week. Due out after the closing bell are results from American Express . Analysts raised concern that AmEx might have to cut its dividend or raise additional capital, particularly after dismal results from rival Capital One that showed credit-card spending fell 10 percent.
Weakness permeated the tech sector, with Texas Instruments sliding ahead of its earnings, due out after the closing bell. Other techs, including Amazon and Research In Motion also declined.
Texas Instruments and a handful of other wireless-chip makers report this week, and the results are expected to be dismal after handset makers turned in a poor showing last week.
Elsewhere, shares of Sprint Nextel rose after the telecom said it would cut up to 8,000 jobs, or 14 percent of its workforce, and will suspend 401(k) payments in an effort to cut costs.
Kimberly-Clark slipped after the consumer-products maker reported lower profits which it attributed to slowing business for Huggies diapers and the various paper products the company makes.
In the day's economic news, the National Association of Realtors reported that existing-home sales jumped 6.5 percentto a 4.74 million annual rate, blowing past expectations of a 4.4 million pace. And leading indicators rosefor the first time since June, the Federal Reserve reported, as government bailouts increased the money supply; economists had expected a 0.3-percent drop.
MONDAY: Earnings from Amgen, AmEx, Netflix and Texas Instruments after the bell; full Senate votes on Geithner (6pm ET)
TUESDAY: Consumer confidence; Fed 2-day meeting starts; Earnings from Verizon, Bristol-Myers, DuPont, U.S. Steel, Yahoo and Sun Micro
WEDNESDAY: Davos Economic Forum begins; Weekly mortgage applications; Weekly crude inventories; Fed decision on interest rates; Earnings from AT&T, Boeing, Novartis, Pfizer, Wells Fargo, Boston Scientific, Qualcomm and Starbucks
THURSDAY: Weekly jobless claims; durable-goods orders; new-home sales; Earnings from Altria, Amazon, Broadcom, Colgate-Palmolive, Ford, Eli Lilly and Wyeth
FRIDAY: Q4 GDP; consumer sentiment; Earnings from Chevron, ExxonMobil, P&G and Honeywell
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