Stocks closed modestly lower Monday, coming off highs reached after news of Osama Bin Laden's death, as investors considered the potential for terror attacks in retaliation for the killing.
The Dow Jones Industrial Average snapped a four-day winning streak and fell 3.18 points, or 0.02 percent, to close at 12,807.36, following an impressive showing in April that ended with the index at multi-year highs.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to nearly 16.
Among key S&P 500 sectors, energy and materials fell, while health care rose.
Futures spiked overnight after news U.S. forces killed Bin Laden, but the market turned lower as "market participants began to focus upon the prospects for a potential surge in terror attacks against western targets in retaliation for the killing," UBS Wealth Management wrote in a research note to clients.
"We don’t think it’s any major concern," Detrick said. "The fundamental reasons driving us higher are still definitely in place."
The VIX usually rises when the market falls, but it gained throughout Monday's session along with stocks, signaling the late session turn around.
The fact that VIX hasn't broken below 15 for any length of time is a "clear concern" for bullish-minded investors, Detrick added. But he believes the so-called fear index will move lower, and wouldn't be surprised for it to go down to around 10, where it traded often during the bull market of mid-2004 to mid-2007.
"We don’t think the bull market is over," Detrick said.
Stocks also may have been under pressure by news U.S. Treasury Secretary Timothy Geithner told lawmakers the Treasury will start taking “extraordinary” steps to extend the federal government’s authority to borrow funds as it nears the debt ceiling.
News of Bin Laden's death should be positive for stocks, as it will prompt more investors to buy into the market, JP Morgan analysts wrote in a note to clients.
That's because the death of al Qaeda's leader means there is less risk in the world, and consumer confidence should rise on news of a major U.S. victory, the analysts said. Also, "catastrophe" assets like commodities will be worth less than equities, further pushing inflows into stocks, they said.
"The death of Osama Bin Laden, in our view, will have durable positive effects on equity markets, persuading investors to diminish fears on global security (a strong case to be made that the war on terror is over), leading to lower equity risk premiums (read P/E of stocks go up)," the analysts wrote.
Not everyone agrees, however. "The fact he has been brought to justice, sure, it’s a positive, it’s great for all parties involved, ....but in the grand scheme of things it’s a non event," said Dan McMahon, director of equity trading at Raymond James. "The markets are about earnings and the economy."
The markets are up considerably since Bin Laden's al Qaeda network struck at the World Trade Center on Sept. 11, 2001. The Dow is up nearly 34 percent, while the S&P 500 is up more than 25 percent, and the Nasdaq has gained more than 70 percent.
This week will be lighter for earnings results, but several companies will report results this week, including Anadarko Petroleum after the market closes Monday. Of the 328 companies reporting so far, or 66 percent of all S&P 500 companies, 72 percent have beaten earnings estimates while 68 percent have beaten revenue estimates, according to Thomson Reuters.
Humana gained after reporting a 22 percent rise in first quarter profits, ahead of expectations.
And Chrysler, managed by Italian car maker Fiat, reported a profit of $116 million, it's first gain since emerging from bankruptcy two years ago. Chrysler lost $197 million a year ago. Revenue rose to $13.1 billion in the first quarter.
In merger and acquisitions news, Teva Pharmaceutical gained after news the pharmaceutical firm would buy Cephalon, a specialty drugmaker for $81.50 a share or about $6.2 billion. Cephalon, which Valeant Pharmaceuticals had sought to acquire in a hostile bid, also gained. Meanwhile, S&P Equity raised its price target on Cephalon from $76 to $82.
Nasdaq OMX shares were halted until 2:30 p.m. after the firm and IntercontinentalExchange announced that their boards have approved their intent to commence an exchange offer to acquire all of the outstanding shares of NYSE Euronext common stock in a cash and stock transaction valued at approximately $11 billion. Shares traded flat after they reopened for trading.
Meanwhile, Ralcorp said its board of directors rejected the unsolicited proposal it received from a third party in March, after a media report that ConAgra had bid for the private-label food maker.
Research In Motion's announcement of two upgraded BlackBerry Bold smartphones didn't do much to reverse the slide in the company's stock, which fell sharply last week after RIM delivered disappointing earnings results.
TiVo shares jumped after Dish Network and EchoStar said it will pay the digital video recorder firm $500 million to settle a patent infringement lawsuit, capping a long and costly legal battle. Dish Network also reported its first quarter profits more than doubled.
Meanwhile, Sony shares rallied after the Japanese technology firm said it plans to resume some services on its PlayStation Network this week following the theft of personal information belonging to 78 million users.
Alcoa gained after the aluminum producer got a boost from Goldman Sachs, which upgraded the firm to "buy" from "neutral." The brokerage also raised its price target on the stock to $22 a share from $17.
Apple fell a day before the Nasdaq 100 is rebalanced, slashing Apple's weighting to 12 percent from about 20. Separately, an analyst at Canaccord Genuity determined the maker of the iPhone earned 50 percent of all smartphone industry operating profits in the first quarter, up from 43 percent a year earlier.
Volume on the consolidated tape of the New York Stock Exchange was 3.9 billion shares, while 935 million changed hands on the NYSE floor.
Over the weekend, Warren Buffett told Berkshire Hathaway shareholders he made "a big mistake" by not questioning David Sokol's "inexplicable and inexcusable" trades in Lubrizol, which violated the company's ethics code.
U.S. crude initially slid more than 1 percent after the news that Bin Laden was killed, but prices eventually stabilized. London Brent crude fell slightly to close at $125.12 a barrel, while U.S. light crude also fell slightly to $113.52.
In the day's economic news, the Institute for Supply Management's April gauge of manufacturing fell less than expected to 60.4 from 61.2 in March. The prices paid index within the report rose to 85.5 from 85, the highest level in nearly three years.
Also construction spending gained 1.4 percent in April to an annual rate of $768.9 billion, according to the Commerce Department, widely exceeding expectations.
Asian stocks rallied, with the Nikkei briefly jumping above 10,000 points, while European shares traded higher. Various markets in Asia and Europe are closed. Financial markets in China, Hong Kong, Singapore, Malaysia and Thailand are all shut for public holidays while the London Stock Exchange is also closed.