Late Downdraft Dents Wall Street's Gains

"People know the headline numbers are going to be bad, but they're saying, 'So what, if it doesn't bleed out and take in core numbers?" said Jim Paulsen, chief investment strategist with Wells Capital Management, "How long have we had this story about how oil prices are going to bleed out?"

Sheldon suggested that, as oil and food spikes deplete discretionary spending, the higher commodities prices may even be having the effect of keeping a lid on the rest.

At the same time, fed funds futures were pricing in odds of just 8% that the Federal Reserve will cut its overnight lending rate by another 25 basis points at its June 25 gathering. The fed funds target rate, which currently stands at 2%, has been pared back by 325 basis points since September in an effort to put a floor under deteriorating economic growth.

The chance for an August easing has all but vanished, signaling that the market anticipates that an economic recovery will have gained enough traction by then virtually to eliminate the need for more Fed support. The expectations for a quarter-point hike in December, moreover, are on the rise.

In less upbeat economic data, RealtyTrac said that foreclosures reached 243,353 in April, which the report noted will add pressure to housing prices that have already dropped. The report said areas of California, Florida, Nevada and Arizona continue to be "particularly hard-hit."

Breadth was positive. Roughly 1.97 billion shares changed hands on the New York Stock Exchange, with advancing issues outpacing decliners by a 3-to-2 margin. Volume reached about 2.11 billion shares on the Nasdaq, as winners just barely squeaked past losers.