The stock market, easily swayed by earnings news, has its sights set on General Electric Friday. GE releases its earnings and plans a conference call with analysts ahead of the market open.

The GE earnings come a day after Microsoft took investors by surpriseby releasing a disappointing earnings report ahead of the opening bell, hours earlier than expected. Microsoft also said it was laying off 5,000 workers, an unusual move for the tech giant and one reason the company may have moved up the timing of its release. On top of the gloomy numbers and deep cost cutting, Microsoft said it will not provide forecasts for the rest of the year.

Microsoft's bad news came on the heels of weak earnings releases from Nokia and several financial companies. But it was Microsoft that really bit into market sentiment. The stock closed down nearly 12 percent, its lowest level in 10 years.

After the bell, Google showed just how mixed the tech picture has been this quarter . It joined Apple and IBM with better-than-expected results.

The wreck that was the banking sector this week actually made history.

According to Jeff Rubin of Birinyi Associates, bank stocks have fallen further and faster than at any time in history, including the Great Depression.

Rubin said on Tuesday, the day of their big sell off, bank stocks were down 78.51 percent from their February, 2007 high. At a parallel point in the 1930s (two years from their high), bank stocks were down 78.09 percent.

It's not a huge difference but ultimately, bank stocks lost a total 89 percent in the Depression era. It took them another nine months from the two-year mark to get there.

"I think the real point here is everyone is looking for a quick rebound in the financials. If you're looking for any guidance, the only guidance we have is the Great Depression. We went 20 years without a rebound. It was sideways until the 1950s, at least for the banks," he said.

Financials are now at an 18-year low in terms of weighting in the S&P 500. They are at 9.99 percent. Tech was in first place, with 16.1 percent and health care was a close second at 15.83.

Earnings news blew up what could have been a second up day for stocks, and it was Microsoft's surpise release of a worse than expected quarter that really sent stocks spinning.

Financials though continue to lead the decline, down about 6 percnet today, while tech is down 3.2 percent. Some of the worst performers are Huntington Bancshares, Fifth Third, Aflac, Citigroup, SLM and Bank of America..

Rubin shared this chart with us.

A wash of earnings news and weekly jobless claims will help decide the market's course Thursday, but there's a good chance there will be follow through to Wednesday's rally.

Stocks head into Thursday riding a tech bounce from Apple's earnings news and momentum from Wednesday. Plus, it is expected Tim Geithner will be confirmed as Treasury Secretary, a key position in the government's financial rescue operation.

Beaten down financial stocks led the market's rally Wednesday. The S&P financial sector recovered nearly 15 percent after Tuesday's pounding. Both Bank of America CEO Ken Lewis and J.P. Morgan CEO Jamie Dimon reported that they were buyers of their companies' shares. Earlier comments from PNC and good earnings from Northern Trust helped calm jitters around the group.

Art Cashin, director of floor operations at UBS, said Wednesday's rally may not be a one day wonder. "It can last a couple of days," he said. "But it's pretty much a Geithner-dodges-a-torpedo rally."

The ailing banking system is at the top of the Obama Administration's agenda Wednesday, after worries about the sector Tuesday handed the stock market its worse Inauguration Day losses ever.

Investors are holding out hope for an Obama rally though any stock market bounce is unlikely to linger because of the weak economy.

Stocks will struggle with a heavy dose of bad earnings news that could dash investor hopes for an Obama rally in the week ahead.

Earnings news from Citigroup and Bank of America are the big hurdles ahead of Friday's opening bell.

Those two reports have been dreaded by investors, who fear revelations of new writedowns and losses. Both banks have been in the news this week, and speculation surrounding them has contributed to the market's gloom. The S&P financial sector lost another 5.8 percent Thursday as Bank of America declined 18 percent into the single digits and Citigroup lost another 15 percent.

Both banks also moved up their earnings release dates from next week, following a similar move by JP Morgan which reported better-than-expected results Thursday. Citigroup is expected to report a loss of $1.25 per share, but some analysts expect worse. The expectations for revenues for the fourth quarter are $14.1 billion, nearly double the poor showing in the year earlier quarter. Investors are also hoping for a glimpse at Citi's future plans when it talks to investors in an 8 am conference call. After its spinoff of its Smith Barney unit into a joint venture with Morgan Stanley , it is expected Citi will target other assets for sale.

Bank of America, which acquired Merrill Lynch Jan. 1, is expected to also explain a new deal with the government when it reports earnings at 7 am Friday.CNBC's Steve Liesman reports that Bank of America has struck a deal with the governmentwhich would guarantee up to $120 billion of its debt and inject it with new capital. Bank of America was expected to have earned $0.01 per share, on revenues of $20.7 billion. The new plan to backstop Bank of America is similar to one the government crafted for Citigroup late last year.

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On Thursday, Citi was surrounded by rumors that it had deteriorated so much that it was in talks with the government to nationalize the bank. However, Citi denied the rumor to CNBC's Charlie Gasparino.

Stocks recovered from their session lows in the afternoon Thursday, before closing slightly higher. "You had Citigroup denying they were in talks about the defacto nationalization of the bank. That was the big overhang going into the weekend. We had been hoping to get a little inauguration bounce,' said Peter McCorry of Keefe Bruyette.

Also Thursday, Democrats revealed details of their stimulus proposal, and the Senate approved release of the remaining $350 billion in Troubled Asset Relief Program funds, as requested by President Bush.

The Dow closed up 12 points at 8212, after dipping down below 8,000 to an intraday low of 7,995. The S&P 500 rose 1 point to 843, and the Nasdaq rose 22 points, or 1.5 percent to 1,511.

The dollar edged up slightly against the euro and a bit more against the yen. Long-dated Treasurys continued to attract buyers, knocking the yield on the 10-year to 2.203 percent.

Oil continued its decline, losing $1.88 per barrel, or 5.04 percent, to $35.40.

Econorama

The markets will also focus on the consumer price index, reported at 8:30 am ; industrial production, at 9:15 am and consumer sentiment at 9:55 am Treasury international capital flow data is released at 9 am.

Richmond Fed President Jeffrey Lacker speaks on financial conditions at 12:15 pm.

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Intel , meanwhile, reported a 90 percent drop in profit, but the company's shares rose in afterhours trading. The company had warned the economy took a bite out of its profits and hurt its ability to forecast. Intel said it could not give an outlook on revenues but said, for internal purposes, it was using $7 billion as an estimate.

But later on a conference call, Intel said it believes its lowered margins will trough in the first quarter. Intel officials were also reported to have said channel inventories fell dramatically in the fourth quarter and that trend will continue in the current quarter, but they believe it will slow and improve in the second quarter.

Genentech earnings rose 47 percent to $931 million or $0.87 per share but were still below expectations. After the bell, its stock slid.

Miracle on the Hudson

Everyone will watch with fascination for new developments in the Hudson River landing Thursday of the U.S. Airways jet bound for Charlotte, N.C. from New York's LaGuardia Airport. After the jet apparently hit a flock of geese, the pilot safely landed the plane on the surface of the river and all 155 people aboard were evacuated before the jet sunk. N.Y. Gov. David Paterson said it was a miracle on the Hudson. Indeed.

Wall Street feels a little like a beach town bracing for a hurricane. Maybe it will hit. Maybe it won't. But the winds have picked up.

Thursday's markets will face JP Morgan earnings, producer inflation data, weekly jobless claims, and the current quarter's first economic headlines in the Philly Fed's report and the Empire state manufacturing survey. Europe's central bank decides on interest rates before the New York open, and Congress will vote on releasing TARP funds to aid the ailing banking sector.

Stocks had their worst day of the young year Wednesday and their biggest drop since Dec. 1. The Dow tumbled 248 points, or 2.94 percent to 8200. The S&P 500 slid 29 or 3.35 percent to 842, and the Nasdaq was down 56 percent or 3.7 percent to 1489. Banks once more led the decline, falling 5.7 percent, and investors fled to the safety of Treasury bonds.

"We started off getting a New Year's bounce. That has so far fizzled and what's starting to unfold is another wave of investors fleeing the markets," said Brian Dolan, chief currency strategist at Forex.com. "I'd be looking for another flight to the dollar and flight to U.S. Treasurys."

Dolan said the charts he watches show a sell signal for stocks. "I'm just seeing these pieces add up to what could happen here. There's nothing good coming down the pike so that's likely to mean another dollar safe haven bid and stock markets get hit," he said. Dolan expects the European Central Bank to cut rates by a half pointThursday, and ECB President Jean Claude Trichet is likely to voice openness to further cuts, a move that should boost the dollar against the euro.

Stocks in the News

After-the-bell news from Apple and on Bank of America could weigh on stocks in the morning. Apple said its founder and CEO Steve Jobs is taking medical leave until July. Just last week, Jobs assured investors his health was not a major concern and that his weight loss was from an easily treated hormonal imbalance. But he stepped aside Wednesday due to more complex health issues, leaving COO Tim Cook in charge amid questions about the company's succession planning and disclosure practices.

Apple fell sharply, but recovered some of its losses in late trading.

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Bank of America also slumped after the Wall Street Journal reported it was in talks to get billions more from the government to help with its acquisition of Merrill Lynch . The story, quoting sources, said discussions started in mid-December for the additional funding. Citigroup, also in the news, already took its second helping of government bailout funds. Citigroup shares were down more than 20 percent amid reports the banking company would sell assets to raise capital.

Citi announced a deal Tuesday to spin off its Smith Barney brokerage into a joint venture with Morgan Stanley . Citigroup Wednesday said it would speed up the release of its earnings by about a week, and now expects to release them Friday. It is also expected to clarify its plans to reshape the company that day.

Worries about the banking sector and its need for more capital have plagued stocks this week. Oppenheimer analyst Meredith Whitney, appearing on CNBC's "Closing Bell," said she thinks banks will be in trouble until 2010. Whitney has said the industry needs way more capital than its taken from the government so far, and they will sell some of their most attractive assets.

"Banks, at a minimum have to catch up on a reserve basis," she said. Whitney added banks have calculated the peak to trough in housing at too low a level and are planning for an U.S. unemployment rate that has already been surpassed.

"I think they can go lower before they go higher. That, I think, is a kind of way of saying I'd diversify out of financials here," Whitney said. JP Morgan is expected to report break even results Thursday but some analysts are expecting a loss. Traders say there are rumors of writedowns surrounding all bank stocks.

All of this focus on banks came as the appointment of Timothy Geithner as Treasury Secretary was delayed until after the inauguration. Senators are questioning his failure to pay self-employed taxes while working at the IMF. The uncertainty around Treasury Secretary, a key role in the government's financial rescue operations, is likely to add to the market's uncertainty if it is not resolved soon. The Senate Banking Committee will hold a heaing on other economic appointments Thursday, including Mary Schapiro for SEC chairwoman.

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Econorama

Brown Brothers Harriman chief currency strategist Marc Chandler said he's watching the producer price data closely Thursday. "Tomorrow and Friday, our inflation numbers are going to be confirming that we're actually going to have deflation. There's going to be a negative reading year-over-year. It'll be the first time in the cycle. PPI will go negative by around one percent or so," said Chandler. CPI is reported Friday.

Chandler said the fourth quarter is expected to be dismal, with GDP a negative five or six percent. Many economists expect the fourth quarter to be the trough in the current recession. "Things are going to get worse before they get better," he said. He pointed out that the stock market has retraced half the gains made since Nov. 21 and the earnings period has just begun.

He said the Empire State manufacturing data and the Philadelphia Fed survey are of greater interest than usual. They are the first data that is measuring January and the start of the first quarter. Chandler said he is hoping to see some stabilizing in first-quarter data as it is released in the coming weeks. "It will still point to a horrific economy..but we need to see some data that shows moderating."

Chandler expects the dollar to continue its upward bias against the weakening euro and Eurozone economy. "I'm bullish on the dollar not because there's good things happening here," he said.

The dollar rose slightly against the euro to a level of $1.3160 per euro. The greenback was nearly flat against the yen. In the bond market, the yield on the 10-year slid to 2.215 percent while the two-year's yield slid to 0.722, its lowest level since Dec. 18.

Crude on the Nymex fell $0.50 per barrel Thursday, or 1.32 percent to $37.28 per barrel. Traders across the markets are watching the weakness in oil, which has continued to tumble on falling demand and has become the symbol for the weak global economy. The S&P energy sector was one of the worst performing stock groups, falling more than 4 percent Wednesday.

Whither Stocks

Patrick Kernan, who trades S&P 500 options, said investors should beware of the volatility around options expirations this week. "There was a lot of volatility buying right out of the gate," he said of Wednesday's trading. He said options investors were buying long dated options, for June, September and December. "They're positioning themselves for months of volatility, as opposed to weeks of volatility," he said. Kernan added that investors are also moving into the VIX, the CBOE volatility index, which traded above 50 Thursday.

Known as the market's fear gauge, the VIX finished at 49.14, up 13.6 percent, its highest level since December.

Earnings Central

Two important earnings reports come after the bell Thursday when Genentech and Intel report.

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Bad news on the economy could trip up markets Wednesday, but traders say they already expect the worst and it may not matter.

Retail sales are reported at 8:30 a.m. Wednesday and are expected to show a decline of 1.2 percent for December. The number could be even weaker based on the dismal sales reported by chain stores last week. Import prices are also reported at 8:30 a.m., and business inventories are at 10 a.m. The Fed's beige book on the economy is released at 2 p.m.

"The retail sales numbers are going to be a disaster. I don't think that's news to anybody," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. "So it's a question of how much worse they are than expectations, and if there are any serious downward revisions. With the beige book, you would expect it to corroborate the collapse in activity and also be very negative."

"The question is - has the market priced it in? We'll see," said LaVorgna.

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Economists have been expecting all data from December and the fourth quarter to be very weak. LaVorgna said he expects GDP, reported at the end of the month, to contract by 6.5 percent in the fourth quarter.

"But in light of the trade number it's conceivable that the economy won't shrink that much, but regardless, it's going to be horrible," he said. Tuesday's report of a much smaller than expected trade deficit was a surprise. The trade balance with the rest of the world declined to $40.4 billion on a record drop in oil prices and weaker demand for imported goods. Economists had expected more than $50 billion.

Stocks were mixed Tuesday with the Dow falling 25 points to 8448, and the S&P up 1.53 points at 871.79. The Nasdaq was up 7.67 points, or 0.5 percent to 1546.46. Financial stocks sold off early in the day, but the sector stabilized and turned higher, to finish up 1.35 percent. The worst performers were the industrial sector and utilities, down two percent.

Buying in bonds pushed the yield on the 10-year lower to 2.301 percent. The dollar rose 1.4 percent against the euro at $1.3190 per euro. It was up very slightly against the yen.

Oil Drill

After five days of declines, oil rose $0.19 per barrel to $37.78. Comments from the Saudis made about production cuts and a blast of cold weather in the U.S. helped sentiment.

Oil and gasoline inventory data is scheduled for release at 10:30 a.m. Wednesday. Platts survey of analysts shows expectations for a three million barrel build in U.S. crude stocks. Gasoline stocks are expected to be up 1.8 million barrels.

Trouble or a Bump in the Road?

Stocks Tuesday shrugged off reports that Senate finance committee members were speaking to President-elect Barack Obama's choice for Treasury Secretary about tax issues and the work authorization of a former housekeeper. Incoming press secretary Robert Gibbs said Tim Geithner made honest mistakes and that he is the right person to head Treasury. Geithner's immigrant housekeeper was temporarily without legal status but later applied for a green card and was never charged. He also did not pay social security or Medicare payments when he worked as a consultant for IMF. But he paid the taxes and interest when alerted by the Internal Revenue Service.

"All in all, everything went fine. I don't think there's a problem with any of these confirmation hearings," said Tim Smalls of Execution after the Senate members met.

Smalls said the market had staged a rally based on the Obama economic team and any problem with Geithner, who headed the New York Fed during the financial crisis, would be a big problem for markets. "Let's put it this way, we'll watch with cautious optimism," he said. Geithner's confirmation hearing is Thursday.

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Citigroup and Morgan Stanley announced they were merging their brokerage operations into a new joint venture. The move will give Citi $2.7 billion from Morgan and take Citi a step closer to a major overhaul of its business model.

Yahoo named Autodesk's Carol Bartz as its new CEO. Yahoo president Sue Decker will leave the firm after a transition.

Xilinx reports earnings after the bell Wednesday.

Scam of the Century

Ponzi scamster Bernie Madoff again appears in court Wednesday as prosecutors once more try to get him thrown in jail.

Questions? Comments? marketinsider@cnbc.com

The fourth-quarter earnings season has barely begun, and Wall Street's already cranky mood is getting worse.

Alcoa , the first Dow component of the earnings season, reported a wider-than-expected lossfor the quarter Monday in its after-the-bell release. Its poor showing followed a day in which financial shares had their worse sell off in weeks on fears of big losses when that sector reports earnings next week. Also, details from the Obama Administration on how financial firms taking government funds could be restricted also hurt shares.

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Tuesday's markets will weigh a speech by Fed Chairman Ben Bernanke ahead of the open. Bernanke speaks at the London School of Economics and takes questions after his 8 a.m. ET talk, entitled "The crisis and policy response." Traders will watch this for clues as to what other moves the Fed may make in an environment where it has essentially taken interest rates to zero.

International trade is reported at 8:30 a.m., and the NFIB small business survey is released at 7:30 a.m.

TARP-edoed

The markets will also be following an afternoon hearing of the House Committee on Financial Services on the Troubled Asset Relief Program (TARP). Fed Vice Chairman Donald Kohn is among those appearing before the committee.

President Bush, at the request of President-elect Barack Obama, asked Congress Monday to approve release of the remaining $350 billion in TARP funds. Former Treasury Secretary Larry Summers, incoming director of the White House National Economic Council., said in a letter that the TARP funds should help prevent foreclosures, ease up lending, but also limit dividends and executive pay for banks taking the funds. Financial stocks were already under pressure on concerns about earnings and fears that Citigroup could report a huge loss next week.

The S&P financial sector finished down 5.7 percent. Citigroup was one of the worst performers, down more than 18 percent. Citigroup is in discussions to merge its brokerage operations with those of Morgan Stanley in a joint venture, and a deal could be announced this week. Some traders see the spin out of Citi's Smith Barney operation as a precursor to other moves to pare down the financial giant as it struggles to rebuild its capital.

"I think there's a lot of second thinking about this magical merger," said Art Cashin, director of floor operations at UBS.

Stocks to Watch

The Dow Monday fell 125, or 1.46 percent to 8474. The S&P 500 slid 20 points, or 2.26 percent to 870.

In the after-hours session, J.P. Morgan shares rose after traders saw its announcement it would release earnings this Thursday instead of next Wednesday as a boost to confidence. Alcoa moved slightly higher after it reported a $1.2 billion loss, its first loss in six years. The stock had been under pressure during the trading day on negative comments from an analyst.

CSX , though, fell after the bell when it warned fourth quarter earnings would be below expectations.

Return of Fear

Worries about the health of financial companies paralleled fresh fears about the credit crunch and weakness of the global economy. Those concerns showed up in a sell off in commodities markets, where gold, copper, and oil all fell. Oil was down 8 percent to $37.79 per barrel.

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The dollar, meanwhile, was higher against the euro , but the yen gained as investors showed aversion to risk assets. Bond prices were mixed. Buying in the 10-year pushed its yield to 2.31 percent from Friday's 2.40 percent.

The Hunker Down Trade

Brian Belski, Merrill Lynch U.S. sector strategist, released a note Monday advising investors to trim low quality gains. He wrote that stocks in the S&P with the lowest quality ranking outperformed those with highest rankings by 30 percentage points since November's lows. Stocks with higher leverage outperformed those with lower debt levels by 10 percentage points during the same period.

Belski said investors should focus on sectors with low leverage and a way to fund themselves. He said discretionary, staples, health care, technology and materials have done the best job deleveraging over the past 10 years. Health care and technology have done the best job growing cash as a percentage of assets in that period, and as a result are best positioned to handle the credit crunch.

"You had a big rally in low quality even though spreads have not come in materially," he said in a phone interview. Belski said the turn to low quality can sometimes lead a recovery. "But what you've seen in the last couple of days is people are trying to get out of these."

"There's a very good chance that the deep downward bent to the market is not going to be around in 2009, but volatility is here to stay," he said. "Part of it is investors when they see a gain, they want to take it and protect it."

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