Businesses expressed concerns about the fiscal cliff, a series of sharp government spending cuts and tax increases scheduled to start Jan. 1 unless an agreement is reached to cut the budget deficit.
"The ISM numbers probably took a little air out of what was some hope for better news on where the economy is going," said Jim Dunigan, executive vice president at PNC Wealth Management in Philadelphia. "We're still in the camp that this gets resolved and we don't go over the cliff, but there's a lot of angst between now and then."
The White House and Congress are still seeking to hammer out a budget deal that will avoid the cliff.
"There's a sense of insecurity until the President and [House Speaker John] Boehner get their act together," said Ben Schwarz, chief market strategist at New York-based brokerage Lightspeed Financial. "If they put together a package in short order, if they do it in the next couple of weeks, you'll see a strong rally."
Stocks have fluctuated since the Nov. 6 election as investors worried that a deal may not be reached in time to avoid the tax hikes and spending cuts, which economists say could push the U.S. into recession. The S&P 500 is still 1.3 percent below its closing level on the day that Americans went to the polls, having fallen as much as 5 percent in the weeks following the election.
Wall Street opened higher Monday following news that manufacturing in China, the world's second-largest economy, grew for the first time in 13 months and after Greece announced details of a bond buyback program.
December is historically the best month for stocks. The S&P 500 has advanced an average of 2 percent over the past 30 years during the month of December, according to research from Schaeffer's Investment Research. The next best month is April, with an average return of 1.7 percent. The worst month is September, where investors lose an average of 0.7 percent.
Among stocks making big moves, Dell rose 42 cents, or 4.4 percent, to $10.06 after Goldman Sachs raised its rating to "Buy" from "Sell." Goldman cited Dell's healthy cash balance and said a recent decline in the stock may have been overdone.
Health Management Associates fell 45 cents, or 5.7 percent, to $7.50 after the CBS news program "60 Minutes" broadcast a segment critical of the company's patient admission policies.
Supervalu, owner of Acme Markets, jumped 30 cents, or 12.6 percent, to $2.68 following a report that private-equity firm Cerberus is considering multiple options for buying parts of the struggling grocery store chain.