Stocks head into Friday with a weekly gain of 1 percent, but traders are seeing signs of wear as a list of disappointing economic reports stacks up against the market's gains.» Read More
The Fed takes center stage Wednesday in a market that will see another deluge of earnings news.
Traders are also watching for more news on the Obama Administration's plans for the Troubled Asset Relief Program (TARP) and the proposal to develop a "bad bank" to hold toxic assets . CNBC's Steve Liesman clarified some aspects of that so-called "aggregator" bank in a report late Tuesday that said the plan is likely to be unveiled next week and could involve the purchase of common equities by the government.
Stocks Tuesday rose for a third day, with the financials up 3.5 percent. Financial stocks rose even more after hours on the CNBC report.
The Dow Tuesday rose 58 points to 8175, while the S&P 500 rose 9 points to 845.
"The market's acting fine with everything we've got going on," said Tim Smalls of Execution LLC. "What remains to be seen is what we'll see with the banks, what we'll see with the stimulus package."
The House of Representatives take up the $825 billion fiscal stimulus package Wednesday.
Smalls said the market showed some resilience when it rose off the 803 level on the S&P 500 last week. "Now we're trading 100 points above the low. That's not a bad little cushion. Are we out of the weeds? No. Are we going to test the lows? We may already have," he said.
"If we get through this week without a big sell off, or a big debacle, I'll take it."
Earnings reports Wednesday morning include AT&T, Boeing, ConocoPhillips, Wells Fargo, Hess, Baker Hughes, Wellpoint, General Dynamics, Legg Mason, Stanley Works and Southern Co. After the bell, Allstate, Murphy Oil, and Starbucks report.
In other corporate news, Bank of America holds a board meeting in Charlotte, N.C. The fate of CEO Ken Lewis is the topic of much speculation on Wall Street after the departure of Merrill Lynch CEO John Thain last week. Thain, who spoke to CNBC's Maria Bartiromo, denied that Merrill suprised Bank of America officials ahead of their merger with deeper losses and said they were made aware of what was going on at Merrill.
The Federal Open Market Committee is expected to release a statement Wednesday at 2:15 p.m., after its second day of meetings. However, there is little it can do in the way of rate cuts since it moved the Fed Funds target rate to a range of 0 to 0.25 percent at its last meeting.
Traders though say there could be some clarity from the Fed on some of its programs, including its plan to buy Treasurys.
Meanwhile, buyers jumped into Treasurys today as the government auctioned $40 billion in two-year notes. "We thought we'd get some cheap notes going into the FOMC. They actually came in pretty well. People had to cover shorts," said Michael Franzese, head of government trading at Standard Chartered.
More From CNBC.com
The yield on the 10-year fell to 2.519 percent and the two-year fell to 0.809 percent.
Oil took a deep dive Tuesday, losing $4.15 per barrel, or 9 percent to $41.58 on concerns about weak demand. EIA inventory data is released at 10:30 a.m.
Business and government leaders continue to meet Wednesday in Davos, Switzerland at the World Economic Forum .
Questions? Comments? email@example.com
Now that there is a new Treasury Secretary in place, a revised plan for the financial bailout is expected and that could be a factor influencing markets in the next couple of days.
Timothy Geithner, former New York Fed President, was sworn in as Treasury Secretary Monday night, after winning approval from a Senate divided over issues with his personal income taxes. He was sworn in shortly after by President Barack Obama.
Geithner and the Obama Administration are expected to quickly redefine the Troubled Asset Relief Program (TARP) and the way the $350 billion in remaining funds will be distributed. The Obama Administration has said the money would be used to help consumers, not just inject capital into ailing financial institutions like the first batch of funding.
More From CNBC.com
Speculation also centers on the creation of a "bad bank" that would be created from the toxic assets sitting on bank balance sheets.
"The debate is pretty heated on it on whether to do the bad bank or not," said Diane Swonk, chief economist at Mesirow Financial. "The real concern is what kind of shenanigans are going to come through with the bad bank loans. I understand the concerns. I also have a hard time seeing how they can move forward without moving the bad stuff off the balance sheets."
Robert Harrington, head of equities trading at UBS, said investors have been waiting for clarity on the TARP and rules for financial firms. "You need some certainty one way or another. You need to see what the rules are. People are confused about the rules," he said.
The markets will also focus on the progress of the fiscal stimulus proposal. President Obama visits Capital Hill Tuesday to discuss the stimulus plan, in the face of Republican opposition. The $825 billion package comes before the House of Representative on Wednesday.
On Tuesday, S&P/Case-Shiller home price data is reported at 9 a.m., and consumer confidence is reported at 10 a.m. The Fed also begins its two-day meeting. Swonk said she hopes the Fed clarifies some of its programs, including what it intends with Treasurys and its plan to buy auto, credit card and student loan debt.
Harrington agrees and says that's what the market is waiting for. "I think the big thing with the Fed is what they are thinking on the Treasurys. The question is will they go in to buy the long-dated Treasurys to keep rates where they want them," said Harrington.
The New York Fed, meanwhile, is expected to name its replacement for Geithner Tuesday. CNBC's Steve Liesman reports that William Dudley is the likely choice. Dudley was chief economist at Goldman Sachs before joining the New York Fed in 2007 as head of markets.
Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.
Greenberg is senior stocks commentator for CNBC appearing throughout business day programming and on CNBC.com.
A CNBC reporter since 1990, Pisani reports on Wall Street and the stock market from the floor of the New York Stock Exchange. Follow him on Twitter @BobPisani.
Epperson covers the global energy, metals and commodities markets from the NY Mercantile Exchange for CNBC and CNBC.com.
Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.
Senior Editor at CNBC, commodity trader in a former life.
CNBC Markets Producer
Senior Producer at CNBC's Breaking News Desk.
Website Producer at CNBC