Stocks started off February mixed as banks took a hit from worries about the so-called "bad bank" plan, while techs got a boost from anticipation that they will benefit from government spending on tech and telecom infrastructure.
The Dow Jones Industrial Average lost 64.11, or 0.8 percent, to close at 7,936.75, after logging the worst January on record that piled another heap of losses onto last year's carnage.
The S&P 500ended flat, while theNasdaq jumped 1.2 percent.
The buzz on the market floor was that traders don't think the government stimulus package will stimulate the economy.
"It's not going to produce a lot of jobs and will cost the taxpayer a lot of money," Art Cashin, director of floor operations at UBS, told CNBC.
Hugh Johnson, chairman and chief investment officer of Illington Advisors, agreed.
"The markets are sending a very defensive signal ... Right now, the answer is [that there's] not much evidence this is going to work," Johnson said.
But given all the uncertainty in the market, traders focused on sector and individual stock plays.
Financials were mostly lower amid worries that the so-called "bad bank" plan is faltering, with Bank of America, which would have a lot to gain from getting some of the Merrill load off its books, leading Dow decliners with a drop of 8.8 percent.
But Hartford Financial led the Nasdaq gainers, climbing 15 percent, after Barron's on Sunday wrote that the company is a "compelling buy" on expectations that it will rebound as the value of its bond holdings recovers.
Techs advanced, with Intel jumping 5.7 percent and Microsoft advancing 4.3 percent, as investors bet that techs may be among the early beneficiaries of government spending.
Applied Materials ticked higher after the chip-equipment maker warned it would post a quarterly lossamid charges related to restructuring, inventory and financial problems, and said sales would come in at the low end of its previously forecast range.
On the earnings front, Mattel tumbled 16 percent after the toy maker said its quarterly profit fell 46 percent, far worse than analyst expected, with the company blaming a stronger dollar and the weakest holiday shopping season in years for its troubles.
(Where do you invest in such a turbulent market? Click on the video at left.)
Humana jumped 5.8 percent after the health-care company reported a 28 percent drop in profit, though the company predicated a big turnaround this year, raising its guidance to expected earnings per share of $5.90 to $6.10 for the full year compared to $3.83 for 2008.
Macy's shares tumbled 4 percent after the department store announced plans to cut 7,000 jobs, or 4 percent of its work force, and slash its dividend.
Alcoa shares fell following news that Chinese aluminum company Chinalco held talks with Rio Tinto about possibly acquiring minority interests in some Rio units, Chinalco said. Alcoa teamed with Chinalco last year to buy about 9 percent of Rio Tinto.
Ford Motor shares skidded after Barclay's Capital downgraded its rating on the stock to "underweight" from "equal weight," saying the auto maker will need government bailout cash by the end of 2009.
After a report Friday showed the economy contracted at its fastest pace in 27 years during the fourth quarter, today's economic news was mixed.
The Institute for Supply Management reported its gauge of manufacturing activity contracted for a 12th straight month in January, though the reading of 35.6 came in better than expected. Construction spending fell 1.4 percent in December. Consumer spending fell 1 percent in December, as expected. Income fell 0.2, half of the 0.4-percent decline expected, but November income was revised lower by exactly the same amount that December beat.
TUESDAY: Auto sales; pending-home sales; Earnings from Merck, Schering-Plough, Dow Chemical; Motorola, Northrop Grumman, PNC Bank, Disney, Electronic Arts, Met Life and Yum Brands
WEDNESDAY: Weekly mortgage applications; ISM services index; weekly crude inventories; Earnings from Time Warner, Clorox, Kraft, Cisco, Prudential, Sunoco and Visa
THURSDAY: Chain-store sales; weekly jobless claims; factory orders; Earnings from Kellogg, MasterCard, Unilever, Hartford Financial, News Corp
FRIDAY: December jobs report; consumer credit
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