Stocks Pull off Earlier Highs, Financials Retreat (ext: ABCNews/The Syreet)

Stocks in New York closed narrowly mixed Monday as Wall Street practiced cautious optimism in a market that one strategist says is driven as much by emotion as by rationality. Stocks pulled back from their early highs and moved lower in late afternoon trading as financial stocks, which had been surging, retreated. Meanwhile, Treasury prices rallied ahead of the latest round of debt auctions.

The Dow Jones Industrial Average closed up 3.32 points, or 0.03%, to 9509.28, while the S&P 500 dropped 0.57 points, or 0.06%, to 1025.56. The Nasdaq Composite lagged by 2.92 points, or 0.1%, at 2017.98.

Market experts have been warning, though, that the market's upbeat mood could be tested with reports this week on consumer confidence and housing. Some signs of recovery have emerged already in the housing market, but consumers are still struggling. Improved consumer confidence and spending is widely seen as one of the keys that could help end the recession.

Meanwhile, there's still a lot of recovery to go, "... we would like to see a healthier consumer, and the data from retailers as well as incomes remain poor with jobs still a messy picture," writes Paul Nolte, director of investments at Hinsdale Associates. "The persistent rise in the stock market may be signaling an end to the recession or investors may be whistling past the graveyard."

Technically overbought conditions haven't led to a lasting pullback, despite data that showed a weaker consumer and rattled China last week. But the market is as emotional as it is rational, says Jeffrey Saut, chief investment strategist at Raymond James.

"Indeed, fear, hope and greed [are] only loosely connected to the business cycle," he wrote in a note to investors. "And, at session 30 in the 'buying stampede,' we are clearly in the 'greed phase.' We continue to invest, and trade accordingly."