Stocks pared their gains Wednesday as banks pulled back but investors remained hopeful that the worst may be over for the economy.
The Dow Jones Industrial Average was struggling to stay in positive territory. The S&P 500 and Nasdaq also wobbled.
Optimism was the word of the day. Treasury Secretary Timothy Geithner told a Senate panel that financial markets are "starting to heal" and that a program to remove toxic assets from bank balance sheets would begin in the next six weeks.
Some CEOs added to the upbeat outlook: GE CEO Jeff Immelt said there are a number of signs that show the economy is stabilizing, including the fact that demand for commercial lending among small businesses has increased significantly, and Bank of America CEO Ken Lewis said the U.S. economy is on the cusp of a slow recovery, adding: "I think the worst is most likely behind us."
And the market seemed to be buying it. The CBOE Volatility Index , which is a closely watched gauge of investor fear, continued to slide, holding below 29; Earlier, it fell below 27. The gauge finished below 30 on Tuesday, the first time its breached that level since Lehman Brothers collapsed in September.
Benjamin Pedley, an investment strategist at LGT Investment Management, went so far as to say we could see the S&P get to 1,000 or even 1,050 over the summer.
But legendary investor Jim Rogers said beware: The current rally is largely due to the central bank printing money and another bottom is coming for the market— probably later this year -- as fundamental problems in the economy persist.
"I'm not buying shares ... Not at all," Rogers said.
General Motors was the biggest percentage gainer on the Dow, up more than 15 percent, as the automaker is expecting three offersfor its German Opel unit.
Bank of America also rose sharply after the bank late Tuesday priced 825 million shares at $10 each. The company is scrambling for cash after the government’s stress tests found it short by some $33.9 billion.
But the rally in the rest of the sector began to fade, with Citigroup, JPMorgan and Wells Fargo retreating. Fifth Third remained higher.
In the day's economic news: Mortgage applications rose last week, reflecting an increase in demand for home refinancing loans as interest rates declined.
Crude oil ticked slightly higher to more than $60.60 a barrel after a report showed crude inventories fell by 2.1 million barrels last week, more than double the 700,000 drop expected.
That sent shares of Dow energy components ExxonMobil and Chevron lower.
Hewlett-Packard was the biggest percentage decliner on the Dow after the company delivered a gloomy outlookand said it was slashing its workforce by another 2 percent.
Home Depot was right there with it at the bottom of the Dow pack, adding to its losses from the prior session after the home-improvement chain beat earnings expectations but said sales declined nearly 10 percent.
Investors will look to minutes from the last Federal Open Market Committee meeting for clues on Fed policy over interest rates and quantitative easing. The minutes will be released at 2 pm New York time.
Retail stocks rallied after Targetbeat earnings expectationsas the discount retailer kept a tight control on inventory and expenses, and its credit-card business was profitable. Target lost out to rival Wal-Mart at the beginning of the recession but has made a focused effort on promoting consumer staples such as food and pharmacy items and on low prices.
But shares of BJ's Wholesale skidded after the wholesale club reported its earnings rose but sales rose just 0.2 percent amid the toll of falling gasoline prices. Still, BJs raised its 2009 outlook.
Tractor maker Deere reported its profit fell 38 percent and slashed its outlookas worries about the recession have crimped demand for farm equipment.
Toll Brothers reported its revenue tumbled 51 percent but new orders were up, reflecting seasonal demand.
Still to Come:
WEDNESDAY: Fed minutes; Fed's Plosser speaks
THURSDAY: Weekly jobless claims; Philly Fed report; leading indicators; Fed's Plosser speaks; Earnings from Gamestop, Hormel, Gap and Aeropostale
FRIDAY: Earnings from Campbell Soup
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