In stark contrast to Monday's dramatic surge, stocks closed virtually unchanged on Tuesday as the bulls took pause following a surprise drop in housing starts.

Today’s Markets

The Dow Jones Industrial Average lost 29.23 points, or 0.34%, to 8474.85, the S&P 500 sank 1.58 points, or 0.17%, to 908.13 and the Nasdaq Composite picked up 2.18 points, or 0.13%, to 1734.54. The consumer-friendly FOX 50 fell 1.32 points, or 0.13%, to 669.39.

The markets barely nudged throughout the day, drifting between gains and losses before ending slightly negative. In fact, the Dow moved just 75 points from peak to trough.

“I think we only have a few more points to go on the upside. I think we’re in a bandwidth until we have some significant news on the recession front and how quickly it’s going to end,” NYSE trader Ben Willis of VDM Institutional Brokerage told FOX Business.

The quiet session comes after the Dow surged 235 points Monday on positive retail and banking developments. The rally was the index’s strongest performance in more than a month and erased most of last week’s rare tumble.

“We are basically trading flat all day with a bias towards the upside, which after yesterday’s big move is sort of a moral victory,” NYSE trader Ted Weisberg told FOX Business. “The market wants to go higher. I suspect we have further to go on the upside.”

Half of the Dow's 30 components closed in the green, led by Citigroup (C) and General Motors (GM). On the other hand, Home Depot (HD) and American Express (AXP) posted the index's biggest declines. 

The Nasdaq Composite inched higher ahead of Hewlett-Packard’s (HPQ) quarterly results. The tech bellwether is set to become the 30^th and final Dow component to report results late Tuesday.

Those hoping for signs of a quick rebound in the housing market may have been discouraged by a Commerce Department report released Tuesday that showed housing starts unexpectedly fell 12.8% in April to a seasonally-adjusted rate of 458,000 units -- a new record low. Economists had forecasted a 2% increase in starts.

While a drop in housing starts will be a near-term drag on the economy, a rebound in the housing market hinges on a purge of bloated inventories. Home building stocks like Lennar (LEN) and KB Home (KBH) gave back some of Monday's big rally.

“The problem is you still aren’t seeing much on the sales front to absorb that inventory. In our view, the housing market really does drive the rest of the economy," said Paul Nolte, director of investments at Hinsdale Associates. 

The housing news overshadowed a slew of positive quarterly reports from retailers.

Home Depot followed in the footsteps of rival Lowe’s (LOW) by beating the Street with an adjusted-profit of 35 cents per share. The better-than-expected results were largely due to cost-cutting as the company said its revenue slid 9.7% from a year ago.

At the same time, upscale retailer Saks (SKS) reported results that exceeded analysts' low expectations and TJX Companies (TJX) said its second-quarter results could top estimates.

Financial stocks erased some of Monday's surge even amid new signs that some major banks will soon be able to return their TARP cash.

Regulators are likely to allow Goldman Sachs (GS), JPMorgan Chase (JPM), American Express (AXP) and several other major banks to be in the first wave of companiesr returning their bailout funds, a financial industry source confirmed to FOX Business. It’s unclear if Morgan Stanley (MS) and State Street (STT) will be approved for the first wave.

In the commodity markets, crude oil settled at a fresh six-month high on Tuesday, building on its largest one-day rally since early April. Crude settled at $59.65 a barrel, up 62 cents, or 1.05%. 

Corporate Movers

Allstate (ALL) is turning down the government’s TARP cash, saying it has “strong capital and liquidity positions.” The insurer, which was approved last week for TARP, also announced a quarterly dividend of 20 cents per share.

Morgan Stanley's (MS) Smith Barney joint venture with Citigroup (C) is slated to close on June 1 after receiving the green light from the Financial Industry Regulatory Authority on Tuesday, Dow Jones Newswires reported.

General Electric (GE) CEO Jeff Immelt sought to reassure investors about its capital situation. “We have plenty of capital -- current scenarios don’t require us to raise any outside capital at all,” Immelt said at a conference, according to Reuters.

American Express (AXP) unveiled plans late Monday to slash another 4,000 jobs, or 6% of its workforce. The card company also said it will cut $500 million from its marketing budget and $125 million in other areas.

Ford Motor (F) told The New York Times the auto maker won’t match big dealer cuts made by rivals General Motors (GM) and Chrysler LLC. Ford also told the paper it won’t match any price cuts that could stem from GM and Chrysler’s restructuring efforts.

Saks (SKS) suffered a 26.9% plunge in sales and posted an adjusted-loss of 3 cents per share but saw its stock surge as the results beat the Street. The upscale retailer also upped its annual target for cost cutting.

TJX Companies (TJX), the parent of T.J. Maxx and Marshalls, posted an in-line profit of 49 cents per share excluding items. The retailer said sales rose 1% to $4.35 billion, beating expectations. TJX was upbeat on the current quarter, saying earnings could top estimates.

Tenet Healthcare (THC) soared 24% after Goldman Sachs upgraded the hospital operator to "buy" from "neutral," citing continued margin improvement and the improved credit markets. Goldman also upped its price target on the company from $1 to $5. Similarly, Goldman raised price targets on urban hospital operators Community Health Systems (CYH) and Health Management Associates (HMA).

Global Markets

European markets built on Monday's surge as London's FTSE 100 rallied 0.81% to 4482.25 France's CAC 40 rose 0.91% to 3274.96 and Germany's DAX gained 2.22% to 4959.62. 

In Asia, Japan's Nikkei 225 jumped 2.78% to 9290.29, Hong Kong's Hang Seng rallied 3.06% to 17544.03 and China's Shanghai Composite jumped 0.9% to 2676.68.