United States stocks closed mostly higher, rebounding from early-session losses, as news out of Washington eased investor worries about debt-ceiling negotiations, though many continued to play defence by cutting back on positions in recently top-performing stocks and sectors.
The Dow Jones Industrial Average rose 26.45 points, or 0.18%, to 14,802.98 points. On Tuesday, the Dow slid 160 points, or 1.1%, to a six-week low.
The S&P 500 index rose 0.95 points, or 0.06, to 1,656.40 points.
The Nasdaq Composite Index lost 17.06 points, or 0.46%, to 3,677.78 points.
Stocks jumped between mild gains and losses for much of the session and turned higher after news that President Barack Obama would meet with House Democrats on Wednesday afternoon and House Republicans on Thursday. But gains were remained moderate as investors said they would look for more signs of progress in the current Washington DC budget standoff.
"That's an olive branch … maybe it's a little more like an olive twig," Glenmede director of investment strategy Jason Pride said.
"It seems like a change, but I would be shocked if there were a complete 180" in the direction of the negotiations, he said.
Stocks and sectors that have outperformed the broader market this year declined for a second day. Investors have been cutting back their bets on growth as they worry that the political impasse in Washington could continue past the deadline to raise the debt ceiling late this month. Missing the deadline could lead to a default.
"It's hard to hold stocks that are priced for perfection when you have a possibility of default that's slightly bigger than zero," Credit Suisse Group AG managing director in equity trading Viren Chandrasoma said.
High-octane names such as Tesla Motors, Netflix and Amazon.com saw declines, losing 2.9%, 4.1% and 1.2%, respectively. The Russell 2000 Index, fell less than 0.1%, and the Nasdaq Biotechnology Index sank 1.9%.
Stocks got an extra boost on news from the Federal Reserve. Investors say that continued stimulus efforts from the Fed have helped support markets amid the political gridlock. Stocks rose in early trading on news that Janet Yellen would be nominated to lead the Fed, as she is seen as a proponent of easy-money policies. However, those gains soon lost steam.
"A lot of people expected Yellen," ING US Investment Management chief investment officer Paul Zemsky said. But it "will be positive once we get through this mess."
Benchmarks extended their gains after the release of the minutes from the bank's latest policy-setting meeting. The minutes said that the decision to keep the Fed's full stimulus efforts in place was a "relatively close call." Officials were concerned about tightening financial conditions with a decision to start to cut stimulus efforts, and how markets would perceive it.
The news from lawmakers and the Fed eclipsed the unofficial start to corporate earnings season, which kicked off when Alcoa reported third-quarter results late Tuesday.
"Whether it's the Fed or Washington, we're just trying to get some clarity," said Mark Freeman, chief investment officer at Westwood Holdings Group.
"I feel like we're trying to look through stained glass. You know there's light on the other side, you just can't see through to what's there."
Alcoa shares climbed 3.3% after the aluminium company reported late Tuesday that earnings rose more than expected, amid lower costs and improved productivity. Revenue declined less than forecast.
Investors also eyed consumer stocks, as a pair of retailers reported mixed results. Discount retailer Family Dollar dipped 1.1% after it provided earnings forecasts below analysts' expectations. Costco Wholesale rose 2.1%, despite missing Wall Street forecasts for the first time in two years, as analysts said that sales at the big-box retailer were strong.
"I don't want to lose sight of what's happening with the consumer," said Mr Freeman.
He is neutral on stocks closely tied to spending, as "we don't expect them to shut their wallets, but we don't expect them to go on a spending spree, either."
Yum Brands, the parent company of KFC and Taco Bell, slumped 6.6% after reporting earnings that fell below analyst forecasts late Tuesday. The company also lowered its full-year outlook, citing weakness in China sales.
Earlier Wednesday, the Mortgage Bankers Association said that its seasonally adjusted index of mortgage applications rose 1.3% in the latest week, as a 2.5% increase in refinancing activity offset a 0.7% decline in purchase applications. Data on wholesale inventories for August were postponed due to the government shutdown.
The yield on the 10-year Treasury note rose to 2.652% from 2.634% late Tuesday.
Crude-oil futures slipped 1.8% to $101.61 a barrel, while gold futures lost 1.3% to $1,306.90 a troy ounce. The dollar rose against the yen and the euro.
European markets declined, with the Stoxx Europe 600 closing down 0.6%. U.K. industrial production in August fell 1.1% on the month, missing expectations of a 0.3% rise. Meanwhile, German industrial production rose 1.4% in August, topping forecasts for a 1% increase.
Asian markets erased early losses to close mostly higher following news of Ms Yellen's nomination. Japan's Nikkei Stock Average rose 1%, and China's Shanghai Composite advanced 0.6%.
In corporate news, Men's Wearhouse soared 28% after it rejected a $2.3 billion bid from Jos. A. Bank Clothiers. Jos. A. Bank shares also climbed, rising 6.9%.