Stocks mostly edged lower on Tuesday, with the S&P 500 pulling back after nearing 1,400 as investors found little reason to extend the previous day's rally on the Federal Reserve's comments on the economy and the banking sector.
While the broader market was flat to slightly lower, the momentum continued in Apple Inc
Shares of Apple have surged 44 percent so far this year, leading some to call for a pullback in the largest U.S. company by market cap.
We do worry that the move in Apple has been a little too much, too fast, as the fear is that as shares rise, expectations will get overly optimistic, said Channing Smith, co-portfolio manager of the Capital Advisors Growth Fund at Capital Advisors in Tulsa, Oklahoma.
While Smith, whose fund owns Apple, said he wouldn't be surprised to see a pullback in the stock, it has gone from being extremely undervalued to just undervalued now, citing the potential of new products.
The Fed said late Tuesday most of the largest U.S. banks passed their annual stress tests of capital strength in a report that underscored the financial sector's recovery, but called out a few that failed, including Citigroup Inc
The central bank also forecast moderate growth over coming quarters with the unemployment rate declining gradually versus the modest growth the central bank said it expected in January. The change in language, used in the Fed's statement after a one-day policymakers' meeting, was seen as a slight upgrade of the economic outlook.
Bank stocks, a major component of the S&P 500's 11 percent gain for the year, led a late-day surge in Tuesday's rally. The KBW Bank index <.BKX> was up 0.5 percent, with its gain for the year at 21 percent.
Bank of America
The Dow Jones industrial average <.DJI> was up 1.63 points, or 0.01 percent, at 13,179.31. The Standard & Poor's 500 Index <.SPX> was down 4.36 points, or 0.31 percent, at 1,391.59. The Nasdaq Composite Index <.IXIC> was down 10.77 points, or 0.35 percent, at 3,029.11.
The three major stock indexes hit multi-year highs in Tuesday's rally, led by the banking industry. Volume on the New York Stock Exchange, NYSE Amex and Nasdaq was close to last year's daily average during March, a significant improvement compared with recent days.
Seeing that financials are largely stronger than the market expected gave us the push we needed to break through the levels we were at, Smith said. Momentum is clearly in place, but we'd like to see greater participation and stronger volume.
The S&P 500 hit a high of 1,399.42, its highest level since early June 2008. The 1,400 level could generate some resistance, but chartists point to the 1,425-1,440 area for the next technical hurdle.
Volume on the New York Stock Exchange, the American Stock Exchange and the Nasdaq hit 7.57 billion shares on Tuesday, near the 7.87 billion daily average in March 2011. The average so far in 2012 is 6.86 billion.
The increasing optimism about the economy helped lift the dollar to an 11-month high against the yen and a 1-month high versus the euro.
The greenback's advance alongside a strong equities market underscores investors' bet that the economic recovery is sustainable.
But Zynga Inc
(Editing by Jan Paschal)