Stocks closed lower on concerns about economic growth and a rise in crude oil to its highest levels of the year.
All of the major indexes finished moderately lower with the Dow posting its fourth straight loss.
"Even with the corrective action we've seen since last week, consolidation is occurring in an orderly manner and that's positive," Gene Peroni, Senior Managing Director of Equity Research at Claymore Advisors, told CNBC.com. "There's still the uncertainty about earnings growth, so, I think, the market will become more stock picking focused, looking for companies that show a good earnings trend."
Some investors said comments from Former Fed Chairman Alan Greenspan about a possible recession in the U.S. didn't help sentiment.
"Greenspan made a comment that alluded to a recession and that generated some level of concern," Randy Bateman, Chief Investment Officer at Huntington Funds, told CNBC.com. "We've had several days of losses for large caps, but the mid-cap index is up 7% and small caps are up about 5%. That's not bad for almost two months into the year."
Several Sectors Hit
Investors sold off financial stocks and industrial shares. Transports fell due to higher oil. Selling in semiconductors and computer hardware helped drag down information technology, which weighed on the Nasdaq.
"There's a lot of economic data coming out this week, so I think we'll kind of languish until we get a lot of that out of the way," Andrew Seibert, Senior Portfolio Manager at Stewart Capital, told CNBC.com. "I think speculators are driving up the price of oil and it's one of these short-term deals. People need to stop worrying."
Traders will get durable goods, consumer confidence numbers and existing home sales on Tuesday. More data follows Wednesday with reports on fourth-quarter Gross Domestic Product and new home sales.
The utilities sector was by far the best performing S&P 500 sector after the announced acquisition of TXU, a Texas utility giant. The Dow Jones Utilities index briefly traded at an all-time high, crossing the 500 mark.
"We're running into some important technical levels," Todd Salamone, Director of Research at Schaeffer's Investment Research, told CNBC.com. "You've got the Dow utilities trading near 500 and tech stocks bumping up against half of their all-time highs. We're seeing fund managers going in with huge index put buying to protect their positions and that's dragging on the market."
Warning From Greenspan
Former U.S. Federal Reserve Chairman Alan Greenspan said the budget deficit remains a significant concern and he warned the U.S. economy could slip into a recession by the end of the year. Greenspan made the comments Monday while speaking via satellite link to a business conference.
TXU agreed to be sold to a group of private-equity firms for about $45 billion, including debt, in what would be the largest private buyout in U.S. corporate history. The firms will pay $69.25 per share for Texas' largest electricity producer. The stock traded sharply higher.
"It just continues to point to the fact that no big company is, if you want to call it like this, 'safe' anymore," said Michael Driscoll, Senior Managing Director in Equity Trading at Bear Stearns. "You have to wonder if corporate America might be a little bit undervalued here if other companies deem to buy one another. It's ultimately very positive for the market overall."
Shares of Dow Chemical also rose on an unsourced report in a British tabloid that said private-equity firms will will make a takeover bid for the company valued at approximately $54 billion.
Shares of Swiss Drugmaker Novartisfell after the Food and Drug Administration asked the company for another study on its key diabetes drug, Galvus, before the agency would grant approval.
However, rival Merck rose after Novartis' drug failed to get approval. Merck, a Dow component, was upgraded to a buy at Citi on its outlook for Januvia, a diabetes drug that will compete against Novartis' Galvus. Merck was the best performing Dow component, rising more than 3%.
And Dow component Coca-Cola rose after being upgraded to buy at Deutche Bank based on valuation and the company's willingness to change.
New York light crude futures traded above $61 a barrel. Crude oil traded higher most of the session after Iran, which has been criticized for its nuclear research program, test fired its first rocket into space, according to Iranian state television. A snow storm in the Northeast of the U.S. also bolstered expectations for higher demand in home heating oil.
Shares of JetBlue were under pressure again today. The airliner canceled 68 flights at John F. Kennedy Airport Monday due to weather conditions. The cancellations follow the company's pledge to compensate customers for more than a thousand canceled flights from a winter storm two weeks ago.
Citigroup has named a new chief financial officer. Gary Crittenden held the same role at American Express. Citigroup was the worst performing Dow component, down more than 2%.
Europe Closes Higher
European indexes closed higher as M&A activity and strong earnings spurred investors, despite worries over Iran’s nuclear program pushing the price of oil up and the dollar down against the euro.
In Sweden, Ericsson offered to buy Norway's Tandberg Television for 9.8 billion kronor ($1.6 billion) in cash. Shares in Ericsson have gained over half a percent in European trade.
Spanish construction group Ferrovial posted 2006 EBITDA of 2.32 billion euros, up 105.6% year-on-year, partly thanks to the company’s acquisition of BAA, the British airport operator. Ferrovial’s stock was up.
In London Pearson posted 2006 earnings at the top end of expectations, with a 19% rise in adjusted pretax profit. Shares in the company were down in European trade, while the FTSE 100, made gains.
Also in the U.K., housebuilderPersimmon met market forecasts with a 17.5% rise in its pretax profit and said the housing market remains strong. Persimmon was trading higher.
In France, reinsurer Scor has launched an unsolicited offer for all shares in Swiss rival Converium, in a 3.1 billion Swiss franc ($2.5 billion) move that would create the world's fifth-largest reinsurer. Shares in the company are down around 2% on the news. The CAC-40 traded up.
The Asian session closed mixed but saw new seven year highs of Japan’s Nikkei 225 Average.