Caution returned to Wall Street Monday as investors gave back some gains from last week's rally even as they found some encouragement from a report that construction spending fell less than forecast. They were also upbeat about President-elect Barack Obama's calls for an economic stimulus package that could include tax cuts.
Stock indexes pared early losses of more than 1 percent to fluctuate in a narrow range. Some retreat was to be expected after investors sent the Dow Jones industrial average soaring to a two-month high on Friday; investors are wary about pouring more money into the battered market with economic data still generally weak.
The Dow Jones industrials have closed down 81, or 0.91 percent, at 8,952. Broader indexes ended with more modest declines.
Investors, however, were relieved Monday after the Commerce Department said construction spending dropped by 0.6 percent in November, half the 1.3 percent decline Wall Street expected.
The market also looked to Washington for direction on the economy. Obama urged congressional leaders on Saturday to work quickly on economic measures that aides say could cost as much as $775 billion, including a reported $300 billion in possible tax cuts.
"There is some optimism out there that there is going to be a massive stimulus package by Obama that is going to get passed and that will help the economy," said Greg Church, chief investment officer of Church Capital Management in Yardley, Pa.
Church warned, however, that a recovery will be difficult.
"The economy is still very weak. Unemployment is still high and is likely to get worse," he said. "This first six months is going to be a roller coaster. I just think we're in a little bit of a positive mode here."
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to 655.7 million shares.
On Friday, the Dow shot up more than 250 points to its first close above 9,000 in two months. Last week, all the major indexes gained more than 6 percent, furthering a rally off multiyear lows that began Nov. 20.
Bond prices pulled back Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.50 percent from 2.39 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.08 percent from 0.07 percent.
The dollar mixed against other major currencies, while gold prices fell.
Crude oil prices rose 36 cents to $46.70 a barrel on the New York Mercantile Exchange.
Despite Monday's early selling, investors are hopeful that the market's strength over the past several sessions can continue. Last week's advance came as many traders were on vacation, making trading volume light and some of the market's moves less convincing.
"We had a good tone coming out of the year," said Richard E. Cripps, chief market strategist for Stifel Nicolaus, but "not all participants were involved. What we're looking to see is how much of those gains we give back."
Analysts expect Wall Street will remain jittery in the coming months as companies release their quarterly results and, more important, their forecasts for the year. Analysts are expecting terrible profit reports and cautious forecasts but anything worse than expected could rock the market.
Kim Caughey, equity research analyst at Fort Pitt Capital Group, said investors are already bracing for lackluster corporate results, a stance that could cap Wall Street's disappointment.
"I think it may put a limit on the downside because we're already expecting things to be terrible. It's not going to take a whole lot to meet or exceed terrible," she said.
Caughey warned, however, that modest expectations likely won't be enough to take the market higher.
"It's just going to limp along," she said of the economy.
Some stocks and sectors saw selling Monday as analysts issued downbeat forecasts. JPMorgan Chase & Co., which last year scooped up operations from ailing banks Washington Mutual and Bear Stearns, fell after a Deutsche Bank analyst late Sunday reduced his 2009 profit forecast. He predicts the company will see increases in soured loans.
In other news, Apple Inc. eased some investors' worries about the health of Chief Executive Steve Jobs. Wall Street closely associates his vision with the company's success. In a letter released Monday, Jobs acknowledged his recent weight loss, and said his doctors believe he has a hormone imbalance. Jobs, a survivor of pancreatic cancer, will continue as CEO during his recovery. Apple rose $4.61, or 5.1 percent, to $95.36.