"I'm impressed by the stock market's resilience. I would've expected a more negative reaction," said Kate Warne, investment strategist at Edward Jones. "I think the reason the market is being resilient is because [ISM] lowers the expectations that the Fed will make any sudden moves."
The ISM non-manufacturing PMI index for August came in at 51.4, the lowest read since early 2010. Economists polled by Reuters expect the index to come in at 55.0, slightly below a July read of 55.5. A number above 50 indicates expansion, while one below 50 shows contraction.
"You have people coming back so, you should have volume picking up, if not today later this week," said Quincy Krosby, market strategist at Prudential Financial. "We've seen this market trade in a fairly tight range," she said. "When the market doesn't have a too much data or a slew of earnings, it gives the market too much time to think and get nervous."
"The equity markets look pretty fully valued," said Mark Heppenstall, CIO at Penn Mutual Asset Management. "There's been a lot of financial engineering to boost EPS, but I think those levers are losing a lot of their effectiveness."
U.S. Treasurys rose following the data's release, with the two-year note yield at 0.72 percent and the benchmark 10-year note yield at 1.54 percent. The U.S. dollar held about 1 percent lower against a basket of currencies, with the euro near $1.125 and the yen around 102.02.
Economic data has been high on investors' radars as the Street tries gauge whether the Federal Reserve will raise interest rates later this month. The Fed's policymaking committee is slated to meet September 20-21.
"Bottom line, it comes down to whether the Fed will focus on one piece of economic news (and thus continue to day trade the data) or are they backing away from their obsession with each individual figure in and of itself," Peter Boockvar, chief market analyst at The Lindsey Group, said in a Tuesday note to clients.
On Friday, investors digested a weaker-than-expected jobs report, which showed 151,000 were added in August, below a consensus estimate of 180,000.
Dollar index intraday chartSource: FactSet
"Many market participants, though, believe Janet Yellen will still pull the trigger in fifteen days based on recent remarks made by the Chairman and trusted sidekick Stanley Fischer," said Jeremy Klein, chief market analyst at FBN Securities.
Market expectations for a September rate hike were 18 percent, according to the CME Group's FedWatch tool.
"I think the view that September, although still in play, is largely an unlikely option," especially after last week's ISM manufacturing print, which showed a contraction, Bryn Mawr Trust's Cecilia said.
Meanwhile, oil prices seesawed, with U.S. crude settling 0.88 percent higher at $44.83 per barrel, erasing earlier losses.
"I think the news we got about the Saudis and the Russians is important because it signals a possible [production] deal," said Peter Cardillo, chief market economist at First Standard Financial.
Saudi Arabia and Russia agreed on Monday to cooperate in world oil markets, but Saudi Energy Minister Khalid al-Falih said there was no need to freeze output for now.
While the Saudi minister played down the prospect of imminent action, his Russian counterpart Alexander Novak said he was open to ideas on what cut-off period to use if countries chose to freeze output and even said production cuts may be discussed.
WTI gained 7.45 percent last month.