Stocks Struggle to Close Higher; Banks Slip

Stocks paring earlier losses in choppy, low-volume trading Tuesday, as investors largely shrugged off Moody's downgrade of Portugal's rating into junk territory.

The Dow Jones Industrial Average zigzagged, after closing higher for the fifth session in the previous session.

HP and JPMorgan led the blue-chip laggards, while Chevron and Disney gained.

The S&P 500 and the tech-heavy Nasdaq were mixed. The CBOE Volatility Index, widely considered the best gauge of fear in the market, gained above 16.

Among key S&P sectors, financials and industrials led the laggards, while energy gained.

Moody's cut Portugal's credit rating by four levels, two notches into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets. The euro extended losses against the dollarfollowing the news.

"When sovereign debt issues are laughed off by central banks...[and] when rules of the game have changed so much, people don't look at the downgrades as a big deal anymore," said Joe Saluzzi, co-manager of trading at Themis Trading.

Volume is expected to remain thin amid shortened trading week, which could increase volatility. Markets were closed on Monday for the Independence Day holiday.

“It seems like stocks are taking a break today,” said Ryan Detrick, senior technical strategist with Schaeffer's Investment Research. “It’s a minor victory for the bulls that we’re not giving up any of the gains last week and we’re holding tough.”

While stocks are likely to remain “choppy for the summer,” Detrick expects to see an uptrend by year-end with the S&P finishing around 1,550 driven by earnings and economic reports.

“Historically, third and fourth quarters are pretty strong and we think the overall uptrend is still in place.”

Later this week, investor focus will shift to jobs, with key employment newsexpected Wednesday, Thursday and Friday.

“No one’s expecting jobs to rally quickly in the short-term,” according to Marc Scudillo, managing officer of EisnerAmper Wealth Management, although he expects the trend to improve in the latter part of the year.

Financials were under pressure after finishing to the upside last week. Morgan Stanley and Bank of America declined.

Regional banks such as M&T, PNC , Comerica and Fifth Third also slipped after Citigroup cut price targets on the lenders, citing earnings pressure from continued low interest rates.

On the tech front, Baidu gained following news Microsoft will team up with the Chinese search-engine giant to develop an English-language search.

Google climbed after Evercore raised its rating on the Internet giant to "overweight" from "equal-weight" and increased its target price to $670 from $620. (Read More: Google Can Reach $800/Share: Analyst)

Netflix jumped to lead the S&P 500 gainers after the DVD-rental service said it is expanding its video streaming service to 43 countriesin Latin America and the Caribbean.

However, SAIC tumbled to lead the S&P 500 laggards after Susquehanna cut its rating on the tech firm to "negative" from "neutral" and lowered its price target to $13 from $15.

Pfizer was slightly lower after a study that said healthy, middle-aged smokers who take the pharma giant's popular quit-smoking drugs Chantix or Champix, have a higher risk of suffering heart attacksor other serious heart problems.

Shares of Novartis are also in focus following positive late-stage study results for its breast cancer drug Afinitor.

Gold jumped $30, or 2.02 percent, to finish at $1512.30 an ounce, as risk aversion returned. Oil prices also gainedwith U.S. light, sweet crude rising $1,95, or 2.05 percent, to end at $96.89 a barrel, while London Brent crude traded above $113.

On the M&A front, Southern Union jumped after Energy Transfer Partners increased its bid to buy the natural gas firm in a deal now valued at $8.9 billion.

Ameron surged after National Oilwell Varco said it will buy the fiberglass pipe manufacturer in a deal valued at $772 million.

And Immucor skyrocketed more than 30 percent after the diagnostics firm said it agreed to be bought by private equity group TPG Capital for a fully diluted equity value of $1.97 billion.

Wendy's/Arby's completed its sale of its Arby's chain to the Roark Cap Group and is expected to change its name to The Wendy's and the firm will continue to trade under the ticker symbol "WEN."

On the economic front, factory orders gained 0.8 percent in May, the Commerce Department reported, bouncing back from a previous figure of minus 1.2 percent. However, the report was slightly lower than the 1.0 percent rise expected by economists according to a Reuters survey.

European shares closed higherfor a seventh straight session.

On Tap This Week:

WEDNESDAY: Weekly mortgage applications, Challenger job-cut report, ADP employment report, ISM non-mfg index, Obama townhall on economy, NYSE shareholders vote on DB merger
THURSDAY: Jobless claims, oil inventories, chain-store sales
FRIDAY: Non-farm payroll, wholesale trade, consumer credit

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