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U.S. stocks closed mixed Tuesday, stabilizing after a sharp two-day rally, as investors awaited the official beginning of the third-quarter earnings season. (Tweet This)
"We've had a strong five-day run capped by yesterday's big move. You still have earnings next week," said Bruce Bittles, chief investment strategist at RW Baird. "Today's a natural response to overbought conditions with news ahead."
The S&P 500 closed about 0.4 percent lower after posting its first five-day win streak for 2015 on Monday.
Energy closed up 2.2 percent and materials gained nearly 1.3 percent as the greatest advancers in the S&P, which attempted slight gains in intraday trade. Health care closed down more than 2 percent as the greatest laggard.
"Obviously after two strong days of back-to-back gains a little profit taking is the order of the day," said Peter Cardillo, chief market economist at Rockwell Global Capital. "Any further strengthening in oil could propel stocks higher."
Crude oil futures settled up $2.27, or 4.91 percent, at $48.53 a barrel. Brent also held gains of more than 4 percent to trade above $51.40.
The Nasdaq composite underperformed, closing down about 0.7 percent after an intraday plunge of more than 1 percent. The iShares Nasdaq Biotechnology ETF (IBB) closed down 3.6 percent at $301.91, while Apple ended about half a percent higher.
"We saw this dynamic yesterday," said Art Hogan, chief market strategist at Wunderlich Securities. "If you look at the IBB, it hit support at $291 and saw resistance at $314."
The Dow Jones industrial average clung to gains of about 14 points after a mildly lower open, with UnitedHealth weighing the most on the index. DuPont closed up 7.66 percent to contribute the most to to gains.
After the close Monday, the chemical company's chairman and Chief Executive Officer Ellen Kullman announced plans to retire October 16. Director Edward Breen will serve as interim chairman and CEO. DuPont also cut its outlook for the year and announced an acceleration of its plans to trim expenses.
Stock performance Tuesday "will be a combination of preparing for earnings and what we'll see for the next few quarters," said Peter Boockvar, chief market analyst at The Lindsey Group.
He didn't think the bottom has been put into the stock market yet. "Even with the rally of substance we're still below the major moving averages. The global growth story is weaker," Boockvar said.
The S&P, Nasdaq and Russell 2000 held below their 50-day moving averages. The Dow topped its 50-day moving average of 16,772 and closed above it for the first time since July 20.
The Dow transports closed above their 50-day moving average of 8.053.46 Monday for the first time since Sept. 17 but fell 1 percent Tuesday to end below that level.
Before the opening bell, PepsiCo reporting earnings that beat on both the top and bottom line. The firm also raised its full-year growth target. Shares of Pepsi closed up 1.3 percent.
Yum Brands was scheduled to report after the close. The unofficial start to earnings season comes Thursday with Alcoa's earnings after the bell. The bulk of third-quarter earnings reports come in the next few weeks.
Nick Raich, CEO of The Earnings Scout, said that of the 20 S&P 500 companies that have reported so far, 85 percent have beat on earnings and 60 percent have beat on revenue.
"It's only 20 companies but it's an encouraging start to earnings season," he said. It's "a lot of consumer companies. We have yet to see a financial company or an earnings company report. ... Those are going to drag down the overall earnings."
Financials will likely see some pressure from the low interest rate environment, Raich said, while energy companies continue to face headwinds from low oil prices.
On the data front, the August trade deficit came in at $48.3 billion, the widest in five months.
The International Monetary Fund trimmed its global growth forecast for 2015 from 3.3 percent to 3.1 percent, citing weaker growth prospects for emerging economies.
Treasury yields spiked before holding lower, with the 10-year at 2.04 percent and the at 0.60 percent.
The Treasury Department auctioned $24 billion of 3-year notes at a high yield of 0.895 percent.
The dollar fell more than half a percent against major world currencies, with the euro at $1.12 and the yen at 120.2 yen against the greenback.
U.S. stocks closed more than 1.5 percent higher Monday, extending Friday's surprise intraday reversal, as investors digested the implications of the jobs data on the timing of a rate hike and awaited quarterly earnings.
While some analysts said the gains were a technical bounce from correction levels, others said the recovery was helped by expectations of easy monetary policy from the weaker-than-expected jobs report. After the monthly nonfarm payrolls report, Fed funds futures were pricing in expectations that the first rate hike will come no earlier than March 2016.
All three major averages held within 10 percent of their 52-week highs, or out of correction territory. The Russell 2000 remained in correction mode.
"There's a good possibility as the first few earnings begin to creep in we could approach 2,000 (on the S&P 500) and cross above that," Cardillo said.
In Europe, stocks ended higher Tuesday following gains in oil, mostly shaking off poor industrial data out of Germany.
In Asia, the Nikkei closed 1 percent higher as investors digested news of agreement on the historic Trans-Pacific Partnership and awaited the outcome of the Bank of Japan's policy meeting Wednesday. The Trans-Pacific Partnership trade deal among the United States, Japan and 10 other Pacific Rim countries still needs approval from the U.S. Congress.
The closed down 7.13 points, or 0.36 percent, at 1,979.92, with health care leading seven sectors lower and energy the greatest advancer.
The Nasdaq closed down 32.90 points, or 0.69 percent, at 4,748.36.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held just below 20.
About eight stocks advanced for every seven decliners on the New York Stock Exchange, with an exchange volume of 997 million and a composite volume of 4.1 billion in the close.
Gold futures settled up $8.80 at $1,146.40 an ounce.
—CNBC's Peter Schacknow contributed to this report.
On tap this week:
Earnings: Yum Brands
5:30 p.m.: San Francisco Federal Reserve Bank President John Williams speaks
Earnings: Monsanto, Constellation Brands, Acuity Brands
7 a.m.: Mortgage applications
10:30 a.m.: Oil Inventories
1 p.m.: 10-year note auction
3 p.m.: Consumer credit
Earnings: Alcoa, Domino's Pizza, Ruby Tuesday
8:30 a.m.: Initial claims
9:30 a.m.: St. Louis Fed President James Bullard speaks
10:30 a.m.: Natural Gas Inventories
1 p.m.: 30-year note auction
1 p.m.: Minneapolis Fed President Narayana Kocherlakota speaks
2 p.m.: FOMC minutes
3:30 p.m.: San Francisco Federal Reserve Bank President John Williams speaks
4:30 p.m.: Fed Balance Sheet/Money Supply
8:30 a.m.: Import prices
10 a.m.: Wholesale trade
11 a.m.: New York Fed President's William Dudley speaks
1 p.m.: Baker-Hughes Rig Count
1:30 p.m.: Chicago Fed President's Charles Evans speaks.
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