Stocks remained weak throughout morning trading as investors focused on clashes between government supporters and protesters in Egypt, and regrouped after the market posted new multi-year highs on Tuesday.
The Dow Jones Industrial Average bounced between positive and negative territory after surging Tuesday to close above 12,000 for the first time since June 19, 2008.
Home Depot and Merck led blue-chips lower, while Disney and Boeing rose.
The S&P 500 also fluctuated, a day after crossing the 1,300 threshold for the first time since August 2008, while the Nasdaq traded flat. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors, financials, telecom and health care fell, while energy and technology rose.
The dollar fell modestly against a basket of currencies, while the euro also weakened. The price of gold fell slightly to about $1,337 an ounce.
The weakness in the markets today reflects caution over how events are unfolding in Egypt, more than the fact the major indices hit multi-year highs on Tuesday, said J.J. Kinahan, chief derivatives strategist at T.D. Ameritrade.
"I don’t think people are in a panic mode yet," Kinahan said. But, he added, "The market could drop quickly and volatility could escalate quickly." That's if there are further signs of unrest, and if it appears power in Egypt is shifting to forces who don't support the U.S, Kinahan said.
Otherwise, traders who follow the S&P 500 view 1,350 as the next technical high for the broad market index, with 1,250 serving as the bottom support level, he said, noting the 1,300 level was more of a psychological barrier than a technical market for traders.
"The true believers (in a bull market) won’t come out until we get to 1,350," Kinahan said.
Strong gains, too, have not unusual on the first trading day of a month. Since the beginning of 2010, the S&P rose 12 out of 14 first days of the month, and nine of those times the gain was more than 1 percent.
On the earnings front, shares of Mattel gained after the toy maker beat analyst expectations on strong sales of core brands Barbie and American Girl. Mattel earned 89 cents a share on sales of $2.12 billion. Analysts had expected the company to earn 86 cents a share on sales of $2.09 billion, according to Thomson Reuters I/B/E/S.
A 21 percent boost in advertising sales for its cable division boosted Time Warner's fourth quarter sales and profits, sending the entertainment company's shares higher.
Electronic Arts soared to the top of the S&P 500 after raising its fourth-quarter and full-year adjusted earnings targets and announcing a stock-buyback plan, although the video-game maker reported a bigger loss for the fiscal third quarter.
But Genworth surprised analysts by posting a loss on Wednesday as the recovery in its mortgage insurance business continued to weigh on the insurer's earnings. Genworth was among the worst performers on the S&P 500 as its shares sank.
In other company news, shares of Wal-Mart Stores slumped after Deutsche Bank downgraded the stock to "hold" from "buy," and lowered its price target to $60 a share from $66.
Deutsche moved to "equal weight" on retail stocks, saying that the recovery scenario is now baked into valuations.
Meanwhile, the political unrest in Egypt remained in focus as supporters of President Hosni Mubarak clashed with protesters. Mubarak pledged Tuesday evening not to stand for re-election in September, a move greeted with a lack of enthusiasm by protesters who have been callling for him to step down immediately.