Stocks recovered from their lows to close mixed on the first trading day of September, but a pair of disappointing economic reports and jitters ahead of the ECB meeting later this week kept a lid on gains.
“These quick turnarounds are not surprising—You’ll find markets bouncing around between these technical levels,” said Keith Bliss, senior vice president at Cuttone & Co.
Stocks were under pressure for most of the session, with the Dow dipping below the psychologically-important 13,000 level and the S&P 500 trading under 1,400, before paring their losses around 2pm ET.
The Dow Jones Industrial Average recovered from its lows but still dropped 54.90 points, or 0.42 percent, to close at 13,035.94, dragged by Caterpillar and United Tech . The blue-chip index was down 113 points at session lows.
The S&P 500 dipped 1.64 points, or 0.12 percent, to finish at 1,404.94. The Nasdaq squeezed out a gain of 8.10 points, or 0.26 percent, to end at 3,075.06.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, climbed near 18.
Among the key S&P sectors, industrials and materials led the laggards, while telecoms gained.
“We should start getting used to these big [market swings]—there will be a lot of headlines in the next few weeks and that’s what’s going to define this fall,” said Brian Battle, vice president of trading at Performance Trust Capital Partners. “It’s remarkable that we’ve had any sort of rally whatsoever in the absence of any fundamental growth and it’s inexplicable that we should be at these prices—this seems to be like the calm before the storm.”
Last week, all three major indexes logged their first gains in August since 2009, lifted by Federal Reserve Chairman Ben Bernanke’s Jackson Hole speech on Friday, in which he reiterated the central bank was ready to act if necessary. Bernanke also said the Fed would continue to hold interest rates at near-zero, and indicated this was unlikely to change before 2014 at the earliest. (Read More: Market Pro Sees Major Stock Selloff in 10 Days)
On the economic front, manufacturing contracted at its sharpest rate in more than three years in August, according to the Institute for Supply Management. And construction spending fell by the most in a year, according to the Commerce Department.
“We’re due for a pullback and [I’m expecting] poor market performance in September and October,” said Doreen Mogavero, president and CEO of Mogavero Lee & Company. (Read More: Rough Path Ahead? September is Dow’s Worst Month)
September is historically the worst month for stockswith more negative years than positive.
Meanwhile, European shares closed lowerafter ratings agency Moody's changed its outlookon the EU to "negative," warning it might downgrade the bloc if it decides to cut the zone's largest members: Germany, France and the Netherlands. The agency's move will add further pressure on the ECB when it releases details of a new debt-buying plan at its policy meeting later this week. (Read More: As Markets Await ECB, the Devil Is in the Detail)
Goldman Sachs and Morgan Stanley gained after CLSA upgraded both financial giants to "buy" from "outperform."
Netflix tumbled after Amazon.com announced a multi-year licensing deal with EPIXfor Prime Instant Video. The agreement comes just days after EPIX's exclusive streaming agreement with Netflix ended.
Facebook hit a new all-time low, trading down more than 53 percent from its IPO price of $38. Meanwhile, Piper Jaffray reiterated its "overweight" rating on the company.
Apple advanced after the tech giant issued an event invitation for September 12 in San Francisco. While the company made no specific mention about the widely-anticipated iPhone 5, there was a reflection of a "5" on the invitation, prompting speculation that the new model could be unveiled during the event. (Read More: As iPhone 5 Rumors Grow, Rivals Scramble to Be First)
Major automakers including Ford , GM and Toyota beat expectations as auto sales continued to show a steady recovery in August. However, shares were mixed.
Among earnings, Campbell Soup posted a profit that topped estimatesand boosted its outlook, but shares lost their initial gains to close flat.
Smithfield Foods missed earnings and revenue expectations. Still, the pork producer traded higher.
PepBoys and Teavana are among companies slated to post earnings after the closing bell.
Supervalu said it plans to start selling single-serve coffee cups, called Java Delight, compatible with machines such as Green Mountain's Keuric.
Medicis Pharmaceuticals soared after news Valeant Pharmaceuticals will buy the biotech companyfor about $2.6 billion in cash.
—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, productivity & costs, Microsoft/Nokia to unveil Windows 8 handset, Verizon/Motorola to unveil Droid RAZR; Earnings from Dollar General, H&R Block, Verifond
THURSDAY: Challenger job-cut report, ADP employment report, jobless claims, ISM non-mfg index, quarterly services survey, oil inventories, NY fashion week starts, Amazon.com press conference; Earnings from Hovnanian
FRIDAY: Gov't jobs report; Earnings from Kroger, Lululemon
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