Investors are looking past the stimulus plan and mixed economic readings Thursday to cautious earnings forecasts and lingering questions about the health of the banking sector.
The stock market made a strong late-day comeback after getting some possible good news about mortgages.
The Dow Jones industrial average pared sharp losses to finish down nearly 7 points Thursday after a report that the government plans to subsidize mortgage payments for troubled homeowners. The idea of targeted help for homeowners impressed investors more than the government's $789 billion economic stimulus package and its revised plan to bail out problem banks.
"It's one little piece of the puzzle that clears up some of the uncertainty," said Joe Keetle, senior wealth manager at Dawson Wealth Management.
To be sure, many questions remain — particularly about how the government plans to remove the complex, souring assets sitting on banks' balance sheets. No one knows how big the losses are going to be for banks, investors and taxpayers — an uncertainty that has been weighing on stocks for months, especially in the financial sector.
"The market is saying, we will give you the capital when we know you've told us the truth about the garbage," said David Darst, chief investment strategist of Morgan Stanley's Global Wealth Management Group.
But a plan focused on the crux of the economy's problems — the housing market — came as at least a temporary relief to investors. If homeowners are able to pay their mortgages, it should not only help the economy, but also keep mortgage-backed assets from losing more value.
According to preliminary calculations, the Dow Jones industrial average slipped 6.77, or 0.09 percent, to 7,932.76, after falling by more than 245 points in earlier trading.
"This is a massive reversal," said Craig Peckham, analyst at Jefferies & Co.
Broader stock indicators ended higher. The Standard & Poor's 500 index rose 1.45, or 0.17 percent, to 835.19, and the Nasdaq composite index rose 11.21, or 0.73 percent, to 1,541.71.
Peckham said stocks also got a lift from a report that a House committee might approve the temporary suspension of credit default swap trading. Credit default swaps are essentially insurance policies for bond defaults; problems in that market have led to massive losses for financial services companies — most notably, the insurer American International Group Inc.
Declining issues outnumbered advancers by about 8 to 7 on the New York Stock Exchange, where volume came to 1.48 billion shares.