Stocks pared their losses Wednesday after a report showed business inventories shrunk at a slower pace and remarks from President Obama on health-care reform.
Still, stocks remained under pressure as bank shares continued to struggle and retail sales unexpectedly fell for a second straight month.
This comes after the Dow gained 50 points Tuesdayas consumer and health-care stocks rose, though weakness in technology and banks prevented larger gains. Some analysts say these fits and starts are just the market cooling its heels after a runup of 30 percent since the market hit a 12-year low in early March.
Business inventories declined 1 percent in March, compared with a 1.4-percent drop in February. Investors have been encouraged that companies have pared down so much, it may be time to start manufacturing again.
Another factor that may have cheered investors were comments by President Obama that the House is working to pass health-care reform by the end of July. After a meeting with House leaders, Obama said the money companies are spending on health care could be spent on innovation.
Retail sales dropped 0.4 percentin April amid weak gasoline and electronics sales, the Commerce Department reported. That follows an upwardly revised 1.3-percent drop in March. Excluding the volatile auto component, retail sales fell 0.5 percent.
Economists had expected the headline number to be flat and the ex-auto gauge to be up 0.2 percent.
Macy's said its loss widened in its fiscal first quarter but beat expectations.
In the day's first economic news, mortgage applications declined last week even as lending rates continued to fall. The demand for refinancing fell even as new purchase applications actually rose slightly.
Shares of homebuilders decline, with both Beazer Homes and Hovnanian down sharply.
American International Group Chief Executive Edward Liddy began testifying before Congress on the collapse and rescue of the ailing insurance giant. He is expected to say that the company has reduced but not eliminated the possibility of the firm collapsing but that it doesn't need any more bailout money. The company has already received $180 billion.
>> Watch the live-streaming video of Liddy's testimony
On the speaking circuit, Treasury Secretary Timothy Geithner said at a banking conference a large part of the financial adjustments are behind us and that the government will use bailout repayments to help smaller community banks.
Fed Governor Elizabeth Duke will talk about banks' role in the financial market at 10:30 am.
The Obama administration is contemplating a major overhaul of the compensation practices in the financial services industry, moving beyond banks to include loosely regulated hedge funds and private equity groups, the New York Times reported.
Some of the largest banks continued to struggle: HSBC, Bank of America and JPMorgan Chase were all down sharply. HSBC officials said Monday they felt the company could deliver a return on equity of 15 to 19 percent.
Goldman Sachs raised its rating on SunTrust Banks to "neutral" from "sell" after the stress test showed the bank needs less capital than the analysts had expected.
Home Depot shares ticked higher after Citigroup upgraded the stock to "buy" from "hold," saying the company could beat earnings expectations this year.
Over in tech land, Intel's positive statement on orders and billings for the second quarter, which came after the bell Tuesday, trumped the European Union Commission slapping a record $1.45 billion fineon the company for anti-competitive practices.
Rival Advanced Micro Devices also gained as the censure of Intel reversed overnight after-hours losses that came after the company reported a quarterly loss on sharply-lower sales.
>> Video: Was Intel Anticompetitive?
Investors continued to rotate into health-care stocks.
Merck and Pfizer were back at the top of the Dow after an analyst said yesterday that Pfizer would likely increase its dividend after it completes the purchase of smaller rival Wyeth.
Ford Motor said late Tuesday it raised $1.4 billion through its 300-million share offer for $4.75 a share, according to Reuters. The company's shares continued to struggle, though.
Shares of rival General Motors continued to get pounded as well: The stock dropped another 10 percent to just a few cents above $1, a fresh 70-year low. The stock had fallen as low as $1.09 in November.
>> Car Dealers Fight Day of Reckoning
Oil continued its climb, topping $59 a barrel.
The dollar fell to four-month lows versus the euro, coming under pressure due to an opinion article in the Financial Times that touched on the risk of the U.S. losing its triple-A credit rating, refocusing attention on rising U.S. debt issuance.
The Treasury Department is due to make $21 billion in coupon payments on Friday as part of flows tied to its quarterly refunding moves. Another $52 billion of coupon securities are due to mature, for a total cash outflow of $73 billion, according to Reuters.
Still to Come:
WEDNESDAY: Business inventories; weekly oil inventories; House hearing on AIG; Earnings from Whole Foods after the bell
THURSDAY: PPI; weekly jobless claims; House hearing on the insurance industry; Earnings from Wal-Mart, Kohl's, Nordstrom
FRIDAY: CPI; industrial production; consumer sentiment; Earnings from JCPenney, Abercrombie
Send comments to cindy.perman@nbcuni.com.