Stocks ended near session highs on Tuesday as investors considered the impact of the Fed's next moves to bolster the economy as well as weak reports on the economy.
The Dow Jones Industrial Average rose about 46 points, after falling more than 80 points earlier in the day.
Pfizer, Intel, and Alcoa led the index higher. Cisco, and Procter & Gamble fell.
The S&P 500 and the Nasdaq also rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 22.
The key S&P 500 sectors all ended higher, led by health care, energy and consumer staples.
The market's struggle for direction comes a day after the major indexes fell about a half percent, taking some of the steam out of a September rally.
Some investors may be positive on the market because of a greater likelihood the Federal Reserve will begin quantitative easing.
The Fed indicated last week that they would act if things don't get better in the economy, which is different than the past, when they said they would act if things got worse, Bob Doll, chief equity strategist at BlackRock, said on CNBC.
“That means the probability has gone up a bunch and in the near-term, that’s got to be positive for equities,” Doll said. “You know what it’s done to the dollar and to the price of gold — it’s likely positive for risk assets and the hope has to be that it all translates to better news for the real economy and the nominal economy.”
The Fed's actions would be done in part to counter deflation. LPL Financial said in weekly report that the Fed may introduce "a $1 trillion Treasury purchase program" at the its next meeting, on Nov. 3.
This "reinflation" of the economy will hurt the dollar as well as financial stocks, Jeffrey Kleintop, chief market strategist at LPL Financial said in his weekly commentary to clients. Areas that Kleintop believes should fare better in the near-term: precious metals, commodities, commodity-sensitive stocks, emerging markets, real estate, and Treasuries.
Since the Fed's announcement, financials have been the only sector to suffer losses, Kleintop said. On Tuesday, financial stocks gained ground and ended about 0.3 percent higher.
JPMorgan Chase may try to recoup the funds it used to buy Washington Mutual assets, according to a report from Associated Press. The bank notified federal regulators of its plans, according to people familiar with the situation, the report said.
Shares of Apple recovered after dropping nearly 6 percent following speculation that top exeecutive Tim Cook would be going to Hewlett-Packard to replace former CEO Mark Hurd, but analysts dismissed the rumors, saying Cook is a favorite to succeed Apple's CEO Steve Jobs.
HP shares rose ahead of its analyst meeting at its headquarters. Expectations remain that a replacement for ousted CEO Hurd is imminent.
Meanwhile, Research In Motion fell 3 percent even after after the smartphone maker unveiled its answer to Apple's iPad, the BlackBerry PlayBook.
Shares of AOL advanced after the Internet services firm said it would acquire TechCrunch, a technology blog and network, as it tries to remake itself into a Web entertainment and news powerhouse.
And Oracle rose after the tech giant sued Micron for alleged price fixing of microchips.
Continuing the flurry of recent M&A activity, Endo Pharmaceuticals jumped more than 8 percent after the firm said it will buy private generics maker Qualitest Pharmaceuticals for about $1.2 billion, marking its second deal in as many months.
Pfizer rose even after the pharmaceutical giant pulled the plug on a late-stage study of its advanced prostate cancer drug Sutent.
UBS removed Procter & Gamble from its U.S. key calls list, although it maintained a "buy" rating on the stock, and a price target of $72 a share.
Monsanto tumbled more than 8 percent amid mounting reports about disappointing harvest results of the company's new highly touted corn seed.
Meanwhile, the dollar index fell to 79.069 earlier in the session—the lowest level since February—as traders factored in the effects of quantitative easing.
Also Tuesday, the government auctioned $35 billion of 5-year notes, which had a yield of 1.260 percent and a bid-to-cover ratio of 2.96. Auctions of 7-year notes are expected on Wednesday.
In economic news, consumer confidence index fell to 48.5 in September from 53.2 in August, according to the Conference Board. The drop marks the lowest level since February. Economists had expected a reading of 52.5, according to Reuters.
Home prices rose in July from June, although the growth slowed, according to the Case-Shiller composite index. According to the index, the 10 major metropolitan areas rose 0.8 percent from June, while the 20-city index rose 0.6 percent. Seasonally-adjusted, the 10-city index was flat, while the 20-area index slipped 0.1 percent.