Concerns that the turmoil will spread across the Middle East persisted after Jordan’s King Abdullah II fired his governmenton Tuesday following protests and asked a former prime minister to form a new cabinet.
Oil rose Wednesdayas turmoil persisted in a region supplying more than a third of the world's oil. ICE Brent crude rose above $101 a barrel, sliding back a bit after hitting $102.18, the highest level since September 2008. U.S. crude oil rose slightly to close above $90 a barrel. Meanwhile, stockpiles of U.S. crude hit a record 38.33 million barrels, according to the U.S. Department of Energy.
After the "sense of euphoria" Tuesday as the Dow and S&P 500 indices broke through key levels, the turmoil in Egypt again took center stage, making investors hesitant to act, Kenneth Polcari, managing director with ICAP Corporates, told CNBC.colm
"The market is holding its own, but it’s telling you it’s a bit nervous," Polcari said.
Despite the lackluster activity, the Dow continued to trade above 12,000 and the S&P above 1,300, an upbeat trend for the market should it hold through the close, he said. But if those levels are broken, the market could be in for a correction, which Polcari said would in fact be healthy for a market that has risen 30 percent since the summer.
Macroeconomic data due out later this week—including the all-important jobs report on Friday—as well as the direction of events in the Middle East, will determine where the market goes from here, he added.
Traders who follow the S&P 500 view 1,350 as the next technical high for the broad market index, with 1,250 serving as the bottom support level, said J.J. Kinahan, chief derivatives strategist at T.D. Ameritrade, noting the 1,300 level was more of a psychological barrier than a technical market for traders.
"The true believers (in a bull market) won’t come out until we get to 1,350," Kinahan said.
Strong gains have not been unusual on the first trading day of a month. Since the beginning of 2010, the S&P rose 12 out of 14 first days of the month, and nine of those times the gain was more than 1 percent.
On the earnings front, shares of Mattel gained after the toy maker beat analyst expectations on strong sales of core brands Barbie and American Girl. Mattel earned 89 cents a share on sales of $2.12 billion. Analysts had expected the company to earn 86 cents a share on sales of $2.09 billion, according to Thomson Reuters I/B/E/S.
A 21 percent boost in advertising sales for its cable division boosted Time Warner's fourth quarter sales and profits, sending the entertainment company's shares higher. (Read more: Ad Rebound, Subscriptions Drive Time Warner Higher.)
Meanwhile, AOL fell despite reporting strong fourth-quarter results, thanks to cost cutting, as advertising and subscriptions slumped.
Electronic Arts soared to the top of the S&P 500 after raising its fourth-quarter and full-year adjusted earnings targets and announcing a stock-buyback plan, although the video-game maker reported a bigger loss for the fiscal third quarter.
Level 3 Communications, meanwhile, skidded after reporting revenues that fell short of expectations.
And Genworth surprised analysts by posting a loss on Wednesday as the recovery in its mortgage insurance business continued to weigh on the insurer's earnings. Genworth was among the worst performers on the S&P 500 as its shares sank.
In other company news, shares of Wal-Mart Stores slumped after Deutsche Bank downgraded the stock to "hold" from "buy," and lowered its price target to $60 a share from $66.
The bank also downgraded retail stocks to "equal weight," saying that the recovery scenario is now baked into valuations.
Ann Taylor was among retailers that fell Wednesday. The women's apparel chain beat expectations, but Wedbush cut Ann Taylor's price target to $24 a share from $27.
Yum Brands , Visa and News Corp are among companies reporting quarterly earnings after the bell.
Online retailer Amazon.com will also be in focus after the Financial Times reported the company is developing a film streaming service which would compete directly with Netflix .
