Stocks held steady Tuesday, a day after a rally and ahead of results of the government's stress tests of banks.
Stocks dipped after the big advance Monday that sent the Standard & Poor's 500 index into positive territory for the year and the Dow Jones industrials up more than 200 points.
"Today's action, just drifting around, is not that surprising given Monday's rally," said Darin Newsom, a senior analyst at DTN in Omaha
Traders had little reaction to comments from Federal Reserve chief Ben Bernanke, who told Congress the economy should start growing again later this year. Bernanke did warn that even after a recovery begins, the economy will still show signs of weakness, but that caveat didn't surprise investors.
"I thought in general, the comments were optimistic, but I'm not sure they told us anything new," said Bill Stone, chief investment strategist at PNC Wealth Management.
A growing amount of upbeat economic data have driven stocks to their best two-month performance in nearly 35 years. However a number of dark clouds still hang over Wall Street, including growing unemployment and mixed news from first-quarter corporate earnings reports.
This week, two major news events could easily upset the market's mood. Results are due Thursday for the government's "stress tests" on banks, and on Friday the government will report monthly employment data, one of the economic indicators most closely watched by investors.
The Dow slipped 16.09, or 0.2%, to 8,410.65. The Standard & Poor's 500 index fell 3.44, or 0.4%, to 903.80, leaving it essentially flat for the year. The Nasdaq composite index lost 9.44, or 0.5%, to 1,754.12.
The Russell 2000 index of smaller companies fell 4.27, or 0.8%, to 502.55.
About eight stocks fell for every seven that rose on the New York Stock Exchange, where volume came to 1.5 billion shares.
Among the economic data Tuesday, a private report on the service sector showed a seventh straight month of contraction. However, the pace of decline slowed more than expected — further evidence that the economy's slide is moderating.
Investors showed little reaction.
"We're really not pushing the market that much lower," Newsome said. "There is still this general sense that things have improved a bit."
Investors are mindful that the stock market typically turns around, on average, about four months ahead of the economy. The S&P 500 is up 33.6% since the rally began March 10. The Dow is up 28.5%.
Liz Ann Sonders, chief investment strategist for brokerage Charles Schwab & Co., said at a press briefing in New York that the economy could have stopped sliding.
"There is some chance — it may not be more than a slim chance — but some chance that we may actually already be out of the recession," she said. Sonders cautioned that a recovery could always reverse and send the economy back into a slump.
Gary Stern, president of the Federal Reserve Bank of Minneapolis, said in a speech that the economy's return to growth "should not be too far off."
But analysts warn that the market's advance will continue to be put to the test.
"Over the past several weeks we've come through a period where all data was interpreted through rose-colored glasses," said Lawrence Creatura, portfolio manager at Federated Investors. "Now, it's a question of whether investors continue to have that perspective."
Investors are focused this week on the results of the stress tests, which will provide details on the U.S. financial companies in need of more capital. Reports have surfaced indicating that Citigroup c, Bank of America bac and Wells Fargo wfc, as well as a handful of regional banks, will be among those needing help.
On Tuesday, The Wall Street Journal said about 10 of the 19 banks undergoing the tests will be required to boost their capital levels as a buffer against potential future losses. The report cited several unidentified people familiar with the matter.
Regulators have said no large institution will be allowed to fail, and have pledged government funds if necessary. Though some investors are worried the report could indicate more pain in the industry than previously thought, many analysts say results of the tests are largely priced into the market already.
Financial stocks were mixed Tuesday. Bank of America rose 46 cents, or 4.4%, to $10.84, while Wells Fargo fell 98 cents, or 4%, to $23.27.
Dow component Kraft Foods kft said its first-quarter profit rose a better-than-expected 10% even as sales dropped. Shares of the maker of Velveeta, Oreo cookies and Maxwell House coffee rose 96 cents, or 4%, to $25.22.
Bond prices dipped, pushing the yield on the 10-year Treasury note up to 3.17% from 3.16% late Monday. Mortgage rates were mixed. The average overnight rate for a 30-year fixed rate was 5.03%, up from 4.86% last week, according to Bankrate.com.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell 63 cents to settle at $53.84 per barrel on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 rose 2.2%, Germany's DAX index fell 1%, and France's CAC-40 fell 0.4%. Markets in Japan were closed for a national holiday.