Stocks traded mixed Monday, as blue chips advanced and small stocks slumped, yet the market was still on track to start the year with two straight months of gains.
TheDow Jones Industrial Averagerose more than 85 points, continuing a turnaround that began Friday, afterstocks ended higher but still snapped a three-week winning streak.
The blue-chip index was on track to rise 2.8 percent this month, following a 2.7 percent gain in January. Of the 26 times the Dow gained in the first two months of a year, only once has it finished the year with a loss. (Read More: Stocks — A Promising Start to 2011?)
Most Dow components gained, led by Hewlett-Packard, Johnson & Johnson and 3M, while Intel fell.
The S&P 500 rose slightly, while the tech-heavy Nasdaq traded flat. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 19.
Among the key S&P 500 sectors, utilities, telecom and consumerstaples rose, while technology and energy declined.
Monday's split market—with large caps outpacing small—comes at the end of the month, when portfolio managers are likely to dress up their portfolios with strong performers.
"It's end-of-the-month window dressing, that’s what we were expecting to see today," says Marc Pado, U.S. market strategist at Cantor Fitzgerald.
Also, weak figures on consumer spending released by the Commerce Department earlier in the session added to worries that consumers are no longer poised to spend, Pado said. Investors have been concerned that rising gas prices, if they persist, will hurt consumer spending going forward.
"Adds up to the fact we may have gotten ahead of ourselves, that consumption would return to normal," he said.
Intel and other chip stocks, which have been driven higher by consumer interest in smartphones and tablets with the latest chip technology, suffered on Monday. HP, however, rose in something of a relief rally after the tech giant's shares lost 12 percent last week in the wake of a weak earnings report
The iShares Semiconductor ETF lost nearly 2 percent. MEMC Electronic Materials , Micron Technology and Nvidia all skidded.
Salesforce.com also sank Monday after news Microsoft succeeded in getting a court order to prevent a former employee from going to work for the cloud computing company. The move is a reversal from Friday, when Salesforce rose after reporting strong quarterly results.
The major indices had started out the session strong as oil prices eased below $97 a barrelin the wake of reassurances about supply from Saudi Arabia, and after St. Louis Fed Pres James Bullardtold CNBC there's no chance the Fed will end its program of stimulating the economy. U.S. light crude settled at $96.97.
Reassurances from Saudi Aramco CEO Khalid al-Falih that extra supply needs had been metsomewhat eased investor concerns, although the potential effects of rising energy costs on the economic recovery remain worrisome.
And late on Friday, JP Morgan upped its forecast for 2011 Brent crude by nearly 14 percent as supply tightens on lower Libyan output.
In mid-day afternoon trading the oil sector was mixed with large companies such as ExxonMobil and Chevron trading on the positive end, while drillers including Diamond Offshore slipped.
The dollar slumped against a basket of currencies, while gold, which continues to provide a safe haven for investors nervous about the Middle East, closed above $1,409 an ounce.
Stocks closed higher Friday, but for the week overall, fears about the turmoil in the Middle East and the oil market translated into the Dow's worst losses since August. Traders, however, stepped in at those lower levels and that buying continued into the start of this week.
"We saw a lot more buying on our desk than selling," Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.
Most of the interest was for industrials and basic materials stocks, Kruszenski said, adding that investors remain wary about the effect of higher oil prices on gasoline prices, and eventually consumer spending, on consumer-oriented stocks.
On the corporate front, JPMorgan fund is in talks to buy a 10 percent stake in privately-held Twitter, the Internet messaging site,for $450 million, CNBC confirmed.
Berkshire Hathaway gained after Warren Buffett delivered upbeat words on the future of the American economy in a letter to shareholders. In the letter, Buffett said: 'My trigger finger is itchy' for major acquisitions. Stifel Nicolaus raised its rating on Berkshire to "hold" from "sell," and KBW raised the company's price target to $133,000 from $127,000.
Meanwhile, Amazon.com slumped after UBS downgraded the Internet retailer to "neutral" from "buy" and cut its price target to $180 a share from $195. The brokerage said Amazon's plans to add prime video streaming will add costs. UBS also downgraded the tech sector to "neutral" from "overweight," but maintained Google as a "key call."
On the utilities front, Edison International led the sector, despite reporting a 22 percent drop in fiscal fourth-quarter earnings.
Among retailers, Abercrombie & Fitch traded flat after news the teen retailer delayed its annual meeting after failing to get enough shareholders to supports its proposal to reincorporate.
Shares of HSBC, fell after Europe's biggest bank cut its profitability targetsdue to the cost of tougher banking regulation and disappointed investors with below-forecast 2010 earnings.
Blackstone was flat after Reuters reported the private equity firm won a contest to buy the U.S. shopping mall assets of Centro Properties in Australia with an offer of about $9.4 billion.
M&A activity was also giving a boost to the market, according to Kruszenski at KeyBanc, citing a nearly $5.8 billion deal among healthcare real estate investment trusts.Ventas' plans to buy rival Nationwide Health Properties in an all-stock deal.
Also in health care, Humana jumped more than 4 percent after the health insurer won back a multibillion-dollar contract that had been awarded to rival UnitedHealth Group . The benefits company raised its fiscal year outlook after the news, which came after it won an appeal to serve the Department of Defense's Tricare health system network.
In the day's economic news, pending home sales in January fell 2.8 percent, which was more than expected, according to the National Association of Realtors. And consumer spending gained less than expected, the Commerce Department reported.
In a more upbeat sign, the Institute for Supply Management-Chicago purchasing managers index rose to 71.2 in February, its highest level since July 1988, a far better reading than the 67.7 estimate of economists surveyed by Reuters.
The big economic news of the week will be on Friday, when the nonfarm payroll report for February is released. Some economists surveyed by Reuters expect as many as 200,000 nonfarm payrolls were added in February, after January's disappointing addition of just 36,000 non farm payrolls, about 100,000 below expectations.
European shares closed higherfollowing the bullish outlook for the U.S. by St. Louis Fed Pres Bullard.
On Tap This Week:
MONDAY: Farm prices
TUESDAY: Auto sales, ISM manufacturing index, construction spending; Fannie/Freddie reform hearing before House financial services committee; and Bernanke's semi-annual report on monetary policy to Congress.
WEDNESDAY: Mortgage applications, Challenger job-cut report, ADP employment report, oil inventories, Federal Reserve's Beige Book; Atlanta Fed President Lockhart speaks; earnings before-the-bell from BJ's, Costco and Staples.
THURSDAY: Chain store sales, ECB announcement, Monster employment index, jobless claims, productivity and costs, ISM non-manufacturing index, natural gas inventories, money supply; Minneapolis Fed President Kocherlakota speaks, Atlanta Fed President Lockhart speaks; earnings before-the-bell from Heinz, Kroger; earnings-after-the-bell from Novell.
FRIDAY: Non-farm payrolls report, factory orders; Federal Budget Deadline.
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