Stocks finished higher Monday as investors chose to focus more energy on scooping up bargains than the latest shoe dropping on the credit front -- this time from AIG.
There's a new pattern in the market, said Art Hogan, chief market analyst at Jefferies & Co., where "we're becoming a little more sector-agnostic -- we can sell off financials and have the rest of the market, which is very oversold, rally."
The Dow Jones Industrial Average, coming off its worst week in nearly five years, clawed its way back with a modest gain, as did the S&P 500 index and tech-heavy Nasdaq. Tech and energy shares posted some of the strongest gains.
The Dow experienced a bit of tug-of-war, with General Motors in the lead and AIG trying to drag the index lower.
Investors drove GM higher after analysts projected that the No. 1 U.S. auto maker would beat expectations when it reports results on Tuesday.
"I think the [GM] stock has been so beaten up that people are hoping for some good news when they release their earnings," William Lefkowitz, options strategist at brokerage firm vFinance Investments, told Reuters.
Intel and Home Depot rounded out the Dow's top three gainers.
AIG tumbled after the world's largest insurer said auditors are questioning the firm's valuation of risky debt. The company said the value of its risky debt portfolio plunged by $5.96 billion, more than three times what it had initially estimated. The disclosure stands in stark contrast to AIG's earlier claim that it didn't face major problems -- as some of its rivals did -- as a result of the credit crisis. AIG shares were down more than 10 percent, the stock's biggest percentage decline since the stock-market crash in October 1987, when AIG shares plunged 15.5 percent.
"If you take out today, Microsoft being down and the bombshell from AIG, we had a pretty nice turnaround," Matthew Cheslock, a senior specialist at Cohen Specialists, told CNBC. "We'd probably be up by triple digits." Instead, the Dow's gain was just under 60 points.
Lowe's recovered after the home-improvement chain reported its earnings dropped 31 percent, hurt by subprime-investment losses at its CNA Financial insurance affiliate.
Tim Smalls, head trader at Execution LLC, told CNBC that he still likes select financials such as J.P. Morgan and People's United , companies that should weather the credit storm a lot better than some of their rivals. He also likes homebuilders due to their cheap valuations, but said he's not jumping on the retail bandwagon.
Hogan said his picks include software stocks, given that the sector looks relatively undervalued and there's a lot of buzz about consolidation in the sector, most recently involving Oracle and BEA Systems.
As if the Dow needed any more excitement today, Dow Jones announced a shake-up in the Dow Jones Industrial Average that will see Bank of America and Chevron added to the blue-chip index, and Altria and Honeywell removed. The changes take effect Feb. 19.
In announcing the changes, Wall Street Journal Managing Editor Marcus Brauchli, who oversees the composition of the Dow, said Altria was removed because it is in the process of restructuring and narrowing its focus. Honeywell was dropped because it's the smallest Dow industrial and industrials are really losing clout in the market anyway.
As for the addition of Bank of America and Chevron, Brauchli said, "we saw that the financials industry was under-represented -- notwithstanding the current turbulence -- and that the oil and gas industry's growing importance to the world economy called for another representative to join Exxon Mobil Corp."
A slew of tech news coupled with low valuations gave the sector a boost today, with solid gains in shares of Apple and Research In Motion ; both stocks have lost more than one-third of their value from their 2007 highs. Semiconductors also had a strong day, with the Philadelphia Stock Exchange Semiconductor Index finishing up 1.6 percent. Also helping Apple, Citigroup announced Monday that it has added the stock to its top-picks list.
Analysts said Microsoft is likely to raise its bid for Yahoo after Yahoo rejected the software giant's $44.6 billion offer, as widely expected. RBC Capital Markets downgraded its rating on Microsoft to "sector perform" from "outperform" and cut its price target on the stock to $31 from $40.
Meanwhile, Motorola and Nortel Networks are said to be considering combining their wireless-networking units, the Wall Street Journal reported.
It's an important week for the telecommunications sector as the World Mobile Congress kicked off in Barcelona and a slew of firms, eager to push their products and services out ahead of the competition, issued announcements.
Nokia , the world's largest cell-phone maker, on Monday unveiled four new multimedia-phone models, including successors to its top N95 and N73 models. The Finnish company also launched its new free media-sharing service, "Share on Ovi." Nokia said it had no plans to use Microsoft's Windows Mobile operating system, making it the only one of the world's leading cell-phone makers to snub Microsoft's system.
Google launched its Android software for mobile phones, which enables users to access the Internet via the mobile telephone.
Microsoft even got in on the action, announcing plans to buy a company called Danger, which makes the T-Mobile Sidekick.
Starbucks announced plans to switch to AT&T from T-Mobile for wireless-Internet service in its coffee shops. The deal calls for a combination of free and paid services, better than the offering it had previously through T-Mobile.
Energy stocks also enjoyed strong gains, which Hogan said was likely due to expectations that profits in the sector will continue to soar. The New York Stock Exchange energy index rose about 1 percent; Exxon Mobil and ConocoPhillips posted some of the sector's biggest gains. Crude-oil futures rose $1.86 to $93.63 a barrel.
Hasbro, the world's second largest toy maker, reported on Monday that its earnings rose 24 percent as sales shot up 16 percent from a year earlier.
Larger rival Mattel recently announced a 15 percent profit increase but faced negative publicity because of its recalls of millions of Chinese-made toys tainted with lead.
In merger and acquisition news, people familiar with talks between Delta and Northwest Airlines could reach a merger agreement as soon as this week.
There are no major economic indicators slated for Tuesday. The next reports will be retail sales and business inventories on Wednesday.