Stocks ended the session slightly lower, though tech stocks ticked higher, as the market held its breath while the Federal Reserve meets to consider an interest-rate cut, and Merrill Lynch stunned investors with a profit warning.
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The market had spent much of the morning in negative territory after a profit warning from top brokerage house giant Merrill Lynch weighed on Wall Street's mood, but its losses began to evaporate past midday.
The broad Standard & Poor's 500 slipped 1.87 points, or 0.15 percent, to 1,216.73, while the Dow Jones industrial average fell 32.14 points, or 0.31 percent, to 10,472.08.
The technology-laden Nasdaq composite index rose 13.50 points, or 0.66 percent, to 2,064.37.
Watching the Fed
"There's a lot of optimism spreading that the Fed is clearly going to cut interest rates 50 basis points, because there is relative unanimity that the fundamental backdrop is not improving," said Ned Riley, chief investment strategist at State Street global advisors.
But Riley cautioned that the rally was tentative: "Someone could sneeze and it all could disappear."
The Fed began its two-part meeting on interest rates on Tuesday. Wall Street is betting the central bank will engineer at least a quarter-percentage point cut, but some investors are hoping for a heftier half-point reduction when the meeting ends on Wednesday afternoon.
Merrill, the No. 1 U.S. brokerage, said its second-quarter earnings would fall as much as 37 percent below Wall Street estimates because of the weak stock market. Merrill slumped 11.35 percent, or $7.54, to $58.91, a low unseen since the second week of April.
"Until we get past these (corporate) confessions, there is no catalyst to spark investors. It's a matter of slogging your way through," said Larry Wachtel, a market analyst at Prudential Securities. "There is nothing around that's going to change the day-to-day psychology. The psychology is defensive, the psychology is 'show me' — show me something that is going to change the pattern around."
Goldman Sachs also dampened investors' mood early in the session after it lowered its estimates on more than 30 technology stocks, citing current business weakness and expectations that the recovery, when it comes, will be more moderate.
While Honeywell rose, General Electric Co. fell $1.13 to $49.12. The European Union competition commissioner said he had the backing of EU governments for his proposal to block the planned merger between the two Dow heavyweights.
Communications chip maker Applied Micro Circuits Corp. also trimmed an early decline to gain 47 cents to $14.67. The company changed its quarterly outlook to a pro-forma loss from a pro-forma profit because of excess inventory among customers.
The Philadelphia Stock Exchange semiconductor index also staked it claim in positive territory and rose 0.8 percent. The semiconductor industry has been mired in what many believe will be its worst-ever slump.
Economic Data Suggests Rebound
In the economic news, a leading barometer of U.S. consumer confidence rose for a second month in June after a rebound in May as Americans became increasingly optimistic about an economic recovery later this year. The Conference Board said its index of consumer attitudes rose to 117.9 in June from an upwardly-revised 116.1 in May.
Sales of new single-family homes edged upward in May, posting their strongest sales rate since March, the U.S. Commerce Department said, underscoring the housing sector's resilience in the face of a slowing economy.
U.S. orders for costly big-ticket items rose last month on solid gains in orders for cars, planes and semiconductors, the government said. Durable goods orders increased 2.9 percent in May to $188.55 billion following a 5.5 percent drop in April, the Commerce Department said.
Excluding the volatile transportation sector, orders for durable goods — which include items like refrigerators and airplanes meant to last for several years — rose 2.7 percent last month.