Stocks continued to hold modest gains ahead of the close, recovering about half of Monday's losses in the wake of S&P's revised outlook on U.S. debt amid a slew of largely upbeat earnings.
The Dow Jones Industrial Average rose more than 55 points following a day when theblue-chip index sank 140 points after S&P revised its outlook for U.S. long-term securities to "negative" from "stable."
Among Dow components Johnson & Johnson and Caterpillar gained, while Travelers and Bank of America fell.
The S&P 500 and the Nasdaq also rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 16.
Among key S&P 500 sectors, materials and energy advanced, while telecom fell.
While earnings season is still young, companies have been beating expectations 71 percent of the time, and 4 percent have come in above estimates, according to Thomson Reuters.
What's different this time is there are fewer real surprises, and that's leading to a lackluster market, says Burt White, chief investment officer at LPL Financial.
"Companies are clearing the hurdle, but they are just clearing the hurdle, while others are clipping the jump," White said. But what people are looking for is "not mildly beating, but soundly beating."
Another trend is "consistent growers" in the consumer staples, health care, utilities, and telecom sectors have been leading the market over the last month instead of cyclicals, like materials and industrials, White said. That's because investors are concerned about austerity efforts in the U.S. and Europe and efforts by emerging countries like China to put the brakes on growth to curb inflation.
"This market is really worried about impact of austerity in half of the world, and the battle in the other half to slow inflation, " White said. "Both will be foots on the brake."
Peter Costa, president of Empire Executions, says earnings so far have been "mediocre," and said he is looking to see what companies are doing with the cash building on their books. A lot of companies would like to build their businesses through acquisitions, but the companies they want to buy are too expensive, Costa said.
They are also finding that repurchasing shares doesn't make sense, since many companies are trading at 52-week highs, he said.
Volume in the markets remains sluggish despite the number of earnings reports, in part because of the Passover and Easter holidays. Only 460 million shares had changed hands on the New York Stock Exchange floor by mid-afternoon.
Johnson & Johnson, which rose nearly 3 percent Tuesday following a strong earnings report, is the kind of stable grower investors prefer in this kind of environment, he said.,
"I think we’re at very early stages of rotation in this market," White said. Investors are "looking for those companies that can be in charge of their own destiny."
In earnings, Goldman Sachssoundly beat expectations, with both sales and earnings in the first quarter coming in strong, but the bank's shares sank after the results got a mixed review on Wall Street.
Dick Bove at Rochdale Securities downgraded Goldman to "neutral" from "buy" saying the firm's asset management business was weak, and its investment banking business wasn't keeping up with its peers, among other concerns.
Several regional banks also released earnings Tuesday. Zions Bancorp soared to the top of the S&P 500 after delivering surprisingly strong results, and receiving boosts in its rating and price target from several brokerages.
Shares of State Street and Regions Financial, meanwhile, rose after beating estimates in the first quarter.
But Bank of New York Mellon slumped despite reporting a 4 percent rise in first quarter profit as assets under custody and fee revenue increased, and Comerica fell despite reporting a 98 percent jump in first quarter earnings, and a 72 percent drop in its loan-loss provisions. US Bancorp also slipped despite good results.
On the tech front, Texas Instruments fell Tuesday after reportings earnings which came in below analysts’ expectationsafter the bell on Monday. About $30 million in costs related to the earthquake in Japan last month took 2 cents out of the company's earnings.
"Japan has a very important role to play in the technology sector," White of LPL Financial said. The fact Japan is not recovery as quickly from the multiple disasters that occured last month is putting a crimp in those stocks.
IBM and Intel were mixed ahead of reporting earnings after the market closes today.
Meanwhile, Research in Motion's Playbook, the Blackberry maker's response to Apple’s iPad, went on sale Tuesday.
Apple is in the spotlight in a separate development as well after Reuters reported the group sued rivalSamsung Electronics, claiming that Samsung's Galaxy line of mobile phones and tablet "slavishly" copies the iPhone and iPad.
Steel stocks were among the strongest performers in the materials sector in the wake of a 63 percent jump in first quarter profits at Steel Dynamics, which was better than expected. US Steel,AK Steel, ArcelorMittal and Nucor all rose sharply.
Nasdaq OMX Group and Intercontinental Exchange are pursuing their proposed takeoverof NYSE Euronext by lining up commitments to fund the takeover, and offering to pay a reverse breakup fee. The NYSE board has rejected the Nasdaq/ICE's $11.3 billion bid in favor of a bid by Deutsche Boerse of Germany for $10.2 billion.
Meanwhile, oil prices ended mixed. London Brent crude fell 0.23 percent to $121.33 a barrel, while U.S. light crude rose 0.96 percent to $108.15.
Gold futures hit a intraday high of $1,500 an ounce before closing up 0.15 percent at $1,494.50.
Gold miners and producers gained, including Agnico-Eagle Mines , Allied Nevada Gold , and Iamgold .Freeport McMoran Copper & Gold , which reports earnings Wednesday before the bell, also rose.
The dollar fell against a basket of currencies as the euro got a boost from economic news.
In economic news, housing starts in March rose 7.2 percent to a seasonally adjusted annual rate of 549,000 units, while building permits for the month rose 11.2 percent, the Commerce Department said Tuesday.
The news boosted stocks of homebuilders including PulteGroup , which led the S&P 500, as well as Ryland Group , Hovnanian and KB Home .
In Europe, Swiss drugmaker Novartis reported first-quarter earnings above analyst forecasts. The stock was 3.3 percent higher in mid-morning trading. European shares closedhigher, helped by positive earnings.
On Tap Next Week:
TUESDAY: Earnings from IBM, Intel, Yahoo after-the-bell.
WEDNESDAY: Weekly mortgage applications, existing home sales, oil inventories; earnings from Abbott Labs, AT&T, United Tech and Wells Fargo before-the-bell and AmEx, Amgen, Apple, Qualcomm, Yum Brands after-the-bell.
THURSDAY: Weekly jobless claims, Philadelphia Fed survey, leading indicators, money supply, Citigroup shareholders meeting; earnings from DuPont, GE, McDonald's, Morgan Stanley, Travelers and Verizon before-the-bell and Advanced Micro and Capital One after-the-bell.
FRIDAY: Good Friday—All markets closed, banks open.
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