United Parcel Services' after the bell earnings warning and the continued meltdown in financial stocks are casting a negative tone on the market ahead of Tuesday's open. But stocks are also somewhat stuck in a holding pattern ahead of Wednesday's Fed news.

Oil, too, has kept the pressure on stocks, continuing its unrelenting move higher, even after Saudi Arabia promised over the weekend to turn on the spigot. Disruptions in Nigeria lifted crude $1.38 per barrel to $137.85.

UPS followed rival FedEx and reduced its profit forecast for the second quarter. Its stock fell after it cut its outlook, saying that the unprecedented increase in fuel costs and the slow economy hurt profits. UPS said it is seeing lower than expected package volume and an accelerating decline in the use of premium air products. It also said it is now seeing the "anemic" U.S. economy negatively impacting package volumes coming into the U.S.

Art Hogan, managing director at Jefferies, says we'll see more earnings negatives related to oil. "I think anybody that uses any sort of energy in any significant way" will show an impact, he told me. "FedEx is the tip of the iceberg," he said (ironically, he made that comment less than an hour before the UPS news)

Two key stock indexes barely budged Monday, with the Dow down 0.33 points at 11,842 and the S&P up 0.07 at 1318. But the Nasdaq was down 20 at 2385, and the S&P financial sector was down 2.7 percent, continuing last week's decline on concerns about more losses and writedowns.

The dollar gained close to 0.7 percent against the euro, and Treasurys sold off, lifting yields. The 10-year was yielding 4.168 percent. Gold moved lower as the dollar rose, losing $16.50 per troy ounce or 1.8 percent to $884.80.

Fed on Hold

The Federal Open Market Committee starts its two-day meeting Tuesday. It is not expected to move on rates, but it is expected to talk tough on inflation and there's some speculation it will indicate a clear inclination toward raising rates when it issues a statement Wednesday afternoon.

Earlier this month, Fed Chairman Ben Bernanke indicated the Fed is unhappy about the weakness of the dollar and said it's monitoring the situation.

"We're in a wait and see mode for something that's very predictable. It's difficult to trade this market and get excited about it," said Hogan of Wednesday's Fed statement.

Econorama

Also expected Tuesday is the S&P Case Shiller Home price index, released at 9 a.m. Consumer confidence is reported at 10 a.m.

"In terms of economic data ... it's going to be really hard to move the needle unless it speaks to inflation," said Hogan. He said he is watching the Thursday's first quarter GDP report for that reason, as it includes a price component. He is also watching Friday's personal income and spending data for the same reason.

Earnings Central

There is some earnings news expected Tuesday with reports due from Kroger ahead of the opening, and Darden Restaurants and Jabil Circuits after the bell.

Goldman Sachs is doing an about face on its May call to buy financial and consumer stocks.

In a note this morning, the firm's strategists said sell financials and consumer discretionary shares and continue to overweight energy and materials. (The contrarian view: The case for consumer discretionary .)

Portfolio strategist David Kostin and four other analysts also are overweighting tech but are neutral on everything else. In May, they had moved to overweight consumer shares and neutral weight on financials.

What happened?

The strategists say they had expected a tactical uptrend in the market. They said they had expected fiscal stimulus and bank recapitalizations to boost consumer and financial shares.

"Our theory was clearly wrong in hindsight: Financials slumped 18 percent and consumer discretionary fell 7 percent while S&P 500 fell 5 percent. We are now back-tracking and again suggest an underweight in both sectors," they wrote.

Inflation is one culprit. So is the weak consumer.

Goldman's commodities research forecasts average 2008 prices for energy, industrial and agricultural materials will be 50 percent above 2007 averages. During periods of rising producer price "crude materials" inflation, operating margins fall, multiples shrink and there are low equity returns. The analysts said in past similar periods, telecoms and financials were the worst performers, and energy and materials posted high returns.

Fear of Financials

Goldman financial sector analysts last week issued a report saying a turnaround in financials is not imminent; credit deterioration will not peak until 2009 and that capital raising is getting harder. The strategists said the financials are 15.1 percent of the equity cap of the S&P 500 and they recommend now underweighting to 13 percent.

Consumer discretionary stocks are 8.4 percent of the S&P, and they recommend weighting at 7 percent.

Goldman has recommended overweighting energy for four years. They recommend a 17 percent weight vs. 14.3 percent for the S&P and for materials they are at 4 percent vs. 3.9 percent.

In technology, they recommend an 18 percent weight vs. the S&P's 16.7 percent. "In terms of the key macro themes in the market -- inflation, consumer weakness, global growth and fiscal stimulus -- technology benefits from continued growth outside the US and it has historically outperformed in high raw materials inflation environments because its margins have been less sensitive to these input costs," they wrote.

Energy Earnings

Like other strategists, Goldman's analysts warn that earnings estimates are too optimistic for the most part. But one area where earnings are not expected to be cut are the energy and materials sectors. They note that during the year, analysts have actually revised energy estimates upward by 13 percent.

Oil: The Wild Card

JP Morgan today issued a note on what stocks might do in three scenarios for oil prices .

-If oil remains in its current range, they say 25 years of daily trading data show that financials would be a place to be. They say financials fell 63 percent of the time when oil rose. Financial stocks though outperformed the S&P after each period. (JP Morgan strategists recommend being long financials.)

-If oil rises $30 per barrel, obviously energy stocks and materials are the clear winners

-If it falls $30, airlines and financials are buys.

JP Morgan's note was based on the findings from its Quant Research department which produced a global oil correlation model that analyzed 2,700 stocks.

Questions? Comments? marketinsider@cnbc.com

Stocks will struggle in the week ahead as they face the multiple threats of record oil prices, higher interest rates, a weak housing picture, and the fragile financial sector.

The big news event will be the Fed's two day meeting, which is not expected to result in any rate action when it ends Wednesday afternoon. But it's likely the Fed will crank up its rhetoric on inflation and possibly send signals about whether it is getting ready to move toward tightening. Traders say too much emphasis on a bias change toward raising rates could hurt stocks, especially the battered banks.

Oil too will be a factor, and the meeting in Jeddah, Saudi Arabia of oil producers and consumers this weekend could generate some important news for energy markets. The Saudis are expected to announce production increases, but traders are watching for other developments as well.

There is a series of important data releases on housing, consumer attitudes and manufacturing in the coming week. There are several earnings reports of note, including tech darling Research in Motion , and beaten down homebuilders KB Home and Lennar .

Wall Street is braced for a wave of negative comments on corporate earnings as the second quarter winds down. This past week, banks took the brunt of selling amid a barrage of negative news on that sector. Analysts cut estimates and issued new warnings about writedowns and dividend cuts. "You can't fight this credit story right now...You get the brokers cutting the big banks. You've got the the brokers cutting the brokers," said one trader.

Financials were down 4.7 percent in a week that saw the Dow lose 3.7 percent and the S&P 500, 3.1 percent. Nasdaq was down nearly 2 percent. The Dow closed at 11,842, its first close below 12,000 since March. There's certainly a growing dark mood among traders that only worsened Friday afternoon when S&P put the U.S. automakers on credit watch and Ford's restructuring news showed just how dire the impact of high gasoline prices has been for the struggling auto sector.

No Summer Fun?

"The next few months are going to be challenging," said Citigroup chief strategist Tobias Levkovich. "...Companies will have to indicate that it's not as good as it was, not that it's terrible."

"I don't think people understand the relationship between the credit markets and business activity," he said. Levkovich said the credit crunch, which began last summer, has had a lagging impact on some parts of the economy. Banks, we saw, were the first to feel the pain. "We're just about to hear companies in the industrial space telling you things are tough...That's one thing I worry about a lot because I don't think investors are prepared for this."

Global growth has helped pad the earnings of some of these companies but now that is beginning to slow down, particularly as you look at Europe. Levkovich has told us that he sees a W shaped downtrend for the economy. "We're inflecting into the next V of the W," he said.

"Earnings estimates are too high but once they get reasonable, we may rally again," he said. Levkovich said he believes though that stocks will end the year higher after this current rocky period. The sectors he likes are financials and retailers. Financials, he says, have already been oversold.

We checked in with Art Cashin late Friday for his latest technical target on the S&P. "People were wondering and worrying about 1310 on the S and P. That is the bottom of an interim downtrend line. If that were to break, it would almost assure a test of the St. Patrick's Day lows," said Cashin, who is the director of floor operations for UBS. Cashin said the VIX does not reflect the high anxiety seen in stocks right now, and the market needs to wash out in a sell off with some heavy volume behind it.

Fed Ahead

The Fed is not expected to move on the 2 percent target Fed funds rate, but it is expected to include hawkish comments about inflation when it releases its statement Wednesday. The market is pricing in a quarter point increase at the October meeting.

"The Fed will continue to its more hawkish tone in its statement, but not move until we get onto firmer economic ground. Recent signs of somewhat better economic conditions are a bit of a head fake, as it is more in response to tax rebates than improving fundamentals. That said, the hawks (largely Regional Fed Presidents) are gaining power, which means we will also see dissents," Mesirow Financial chief economist Diane Swonk wrote to us.

Mark Zandi, chief economist with Moody's Economy.com also agrees the Fed will not act and he does not expect them to start hiking rates until early next year. "It will be clear from the statement that they lean toward tightening because of inflation risks," said Zandi.

He said he believes the Fed is doing the right thing. "I think the house price declines start to abate late this year and early next. It feels like we're in some type of cathartic process right now. I think this process has to go through Arizona, Florida and some Northeast markets. I think he worst will be over by this time next year, by spring, and that will be the clear signal for the Fed to raise rates," he said.

"The irony is what's driving inflation fear is oil and what's driving oil is house price declines. It's creating so much angst in the financial system that investors just go to commodities" for returns instead of stocks and other instruments, he said.

Boiling Oil

At the meeting of oil producers and consumers Jeddah, the Saudis are expected to announce an increase in production. The Saudi oil minister confirmed that the kingdom will raise crude output to 9.7 million barrels per day in July, which would be 500,00 barrels above May's level. They may also talk about improving production and refining operations, traders say. Oil finished the week at $134.62 per barrel.

Oil inventory data is released Wednesday at 10:35 a.m.

Econorama

On the housing front, the Case Shiller home price index is reported Tuesday; new home sales are Wednesday and existing home sales are Thursday. Consumer confidence is released Tuesday and consumer sentiment is reported Friday. Durable goods orders for May are released Wednesday, and final fist quarter GDP is Thursday. Personal consumption and spending data is released Friday.

Earnings Central

Techs, retailers and homebuilders are among the handful of companies reporting in the week ahead. Research in Motion and Oracle report after the bell Wednesday. Retailers reporting include Walgreen on Monday; Kroger on Tuesday; Bed Bath and Beyond Wednesday, and Rite Aid on Thursday. Lennar reports Thursday and KB Home reports Friday.

In other corporate news, we'll be on the watch for news from Anheuser-Busch on its consideration of InBev's takeover bid. CSX Wednesday holds its shareholder's meeting, where a hedge fund is vying for board seats. Washington Mutual shareholders are set to vote Tuesday on TPG's $7 billion investment in WaMu.

- Questions? Comments? marketinsider@cnbc.com

A blast of negativity surrounds the financials this morning, dragging stocks lower in what promises to be a volatile day.

Rumors that Merrill Lynch will preannounce a writedown swept through trading rooms ahead of the open. Merrill declined to comment on that rumors, according to Reuters.

Separately, Merrill Lynch's analysts this morning made a significant call on big regional bank stocks, saying they expect dividend cuts at SunTrust, Wachovia, and Bank of America. The firm cut price targets and earnings estimates for the group and said bank stocks appear to be in "capitulation mode."

J.P. Morgan analyst Vivek Juneja also said more reserves are needed at large banks in a note this morning.

There is no economic data on the calendar, but this could be be an important day for crude ahead of Sunday's oil producers and consumers meeting in Jeddah, Saudi Arabia. It is also an expiration Friday in the stock market, and that could add to volatility.

Oil fell $4.75 per barrel, or 3.5 percent to $131.93 Thursday after China said it would increase the price for diesel by 18 percent. That helped stocks gain and the dollar rose against the euro for the first time in three days, reaching $1.5502 per euro. In the Treasury market, yields rose, with the 10 year reaching 4.201 percent.

Oil was moving higher this morning.

Citigroup was a negative for the financial sector Thursday but the group finished higher after a wishy-washy performance. Citi stock though finished off a percent on comments from its CFO that there could be more writedowns.

Citi CFO Gary "Crittenden's comments were not that surprising. The market decline in response to them may just indicate how jumpy the markets are right now," Sandler O'Neill anlayst Jeffrey Harte wrote to us. (Sandler has a client relationship with Citigroup)

This morning, Citigroup was lower after Ladenburg Thalmann analyst Richard Bove cut his target on the stock to $25 from $31 and projected a bigger loss. UBS also made negative comments on the stock.

The financials have been acting poorly this week, and Keefe Bruyette trader Pete McCorry doesn't expect much improvement ahead of earnings in the beginning of July as fears of dividend cuts and writedowns linger. "We're a couple three weeks from earnings. What's the catalyst for these things now? I don't see it," he said.

Saudi Success?

Cambridge Energy Research analyst Dan Yergin said this weekend's meeting will be very important for the Saudis. "The basic thing they want to do is bring a halt to what they see as a speculative bubble in oil prices. I think that's the central objective," said Yergin, CNBC's global energy analyst. "A lot of prestige and a lot of credibility is now invested in this and it's being done on very short notice."

Yergin said the Saudis are concerned oil shock will hurt the global economy, but they are also concerned about oil "overreaching." "As a result, oil could lose its dominant position in transportation, a loss of market share, and they don't want to be held responsible for this."

The Saudis are expected to increase the amount of oil they produce but Yergin says despite the numbers flying around, it is still unclear what the amount will be. It'll be a range. It may surprise us, but at this point it will be at least several hundred thousand barrels. We don't know the number of barrels ... the question is who wants to buy the barrels. That's a key determinant." The Saudis produce a heavy crude.

Yergin said China's announcement was very important. "It's a very powerful message and it's very likely it was timed to the Jeddah process. Whether it's been in the works for months or whether it was (this weeks' meetings with Treasury Secretary Hank) Paulson connected to this, it's been on the mind of the Chinese leadership for months, and they've always been worried about the social turmoil that would come from price decontrol ... So they chose to address it by subsidizing the sensitive groups, like farmers and taxi cab drivers, groups for who the burden falls disproportionately. But they're not going to subsidize the rising middle class any more," he said.

Yergin said China's move is also significant in that other Asian countries have also moved to decontrol prices. "It means that demand will start to reflect real prices rather than subsidized prices."

Getting Technical

One stock group that had a decent day Thursday and may benefit again Friday is tech. Look at the action in Apple , Research in Motion , and Amazon .

I spoke to T3 Capital's Scott Redler June 5 on a few of the tech names, including Research in Motion. Redler is a technical analyst and at the time, he pointed out that RIM was ready to break out, as we see it has.

This is what he told me June 5:

It is forming a pattern that is a precursor to a move. "If all the rest of the big cap techs move, we believe it will move to the upside," he said. "$140.25 would be the technical buy price and the measured move for Rim would be around $170," he said.

Since that time, a number of analysts have made positive comments on the stock including UBS, Lehman, Bank of American and AmTech this week. RIM reports earnings next week.

"A stock's not going to break out and have follow through unless something fundamental's going on,:" Redler said Thursday. "Now at $147, it's hard to initiate a trade here. At this point it's where smart money sells into the move. It probably will continue to act well into earnings which is next week." Redler said he would take profits now on a third of his position which would have been acquired at around $135. Redler's horizon is typically very short term.

(Readers: I have updated this commentary this morning to reflect market developments)

Questions? Comments? marketinsider@cnbc.com

High oil prices and a wary skittishness among traders keeps the pressure on stocks going into Thursday's session.

Weekly jobless data, reported at 8:30am ET, is the big number ahead of Thursday's bell. The Philadelphia Fed survey and leading indicators are released at 10am.

Wednesday's market was another sloppy day, as traders had warned. The Dow finished at a three-month low , after taking a dive under the 12,000 level for the first time since March 17. It closed at 12,029, down 1 percent. The S&P 500 was off nearly a percent at 1337.81.

Oil was a big factor for Wednesday's market, moving up amid news of a strike threat in Nigeria. Oil finished up $2.67 per barrel or 2 percent to $136.68, reversing three days of losses.

UBS director of floor operations Art Cashin said weekly jobless claims will be important to the market if there is a spike. "The Philly Fed could also be important if it is as weak as the New York Fed (Empire State survey)," he said.

Cashin said the market, which closed off its lows, could have been worse Wednesday.

"The S&P held twice in the afternoon at precisely the same level - 1333, and the Dow, which needed to hold 12,000, got just very marginally below. So, from a cocktail napkin charting system that would be a hold. Those two things averted going off a cliff," he said.

Financials were again among the worst performers, down 1.2 percent. Consumer discretionary stocks were the worst, off 1.9 percent, followed by technology, down 1.3 percent.

There's a bearishness surrounding the stock market as we head into the second quarter's close.

Dan Niles, technology analyst with Neuberger Berman, appeared on "Closing Bell" Wednesday. He said the housing market and oil are obstacles to the consumer and we haven't seen the worst impact of high oil prices yet. He also said the rebate checks are giving the economy an artificial buoyancy.

"We're probably the most defensive we've been in the portfolio in a number of years now," he said.

"What we're trying to do is assess what businesses actually benefit from this," said Niles. One stock he likes is MEMC Electronic, which provides solar wafers to the solar industry.

"Their business is booming. We're also buying more shares of eBay today." He called eBay a "Wal-Mart" of the Internet, where people shop for bargains in a soft economy.

Stocks in the News

Speaking of eBay, it holds its annual meeting Thursday. Biogen Idec is also holding its meeting. Investor Carl Icahn proposes a slate of three directors for the company's 12-member board.

Also worth watching is the Bank of America homebuilder conference in New York.

Flood-onomics

President Bush turns his focus to the Midwest floods with a visit to Cedar Rapids, Iowa on Thursday. Corn prices Wednesday traded close to $8 a bushel on worries that the flood damaged fields are in worse shape than expected.

The flooding is taking a serious toll on farming and business in the area, and the full impact has yet to be seen. Businesses remain under water, and railroads are diverting trains around miles of closed tracks. As Union Pacific has warned, it will take a bite out of earnings.

Deutsche Bank's chief U.S.economist Joseph LaVorgna says the flooding in the Midwest could also impact jobs data, and he is considering a downward revision to his June employment forecast. Thursday's jobless claims could show some clues about the potential impact, he says.

We know meat producers are already under pressure from high grain prices, and the flood is making that worse. Tyson Foods shares fell sharply Thursday after Fitch cut its debt rating to junk. Fitch said higher-than-expected grain costs and the length of time required to pass through those higher prices is cutting into profitability in the company's chicken business.

I wanted to learn more about this situation because it will no doubt hit the consumer hard. I spoke with friend and former colleague Janie Gabbett, who is the executive editor of meatingplace.com , a trade publisher for meat producers.

She pointed out that the meat processors were petitioning the EPA Thursday in an effort to get them to waive the ethanol mandate. They contend the required supply of corn for ethanol is competing with corn needed for livestock.

"The meat industry was already upset about the ethanol mandate. The need for corn for ethanol had already boosted corn prices. Now with the corn crop really under pressure, they are looking for anything to relieve escalating prices," she said.

"The USDA estimates 4 billion bushels would go to ethanol. They estimated the U.S. corn crop would be about 11.7 billion bushels, and this was before the impact of this week's flooding," she said. She noted that Farm Futures magazine is now estimating up to 3.3 million acres of farm land could be flooded.

I asked Gabbett how much meat prices are expected to rise, and she said the answer is complicated. Cattle can be fed things other than corn, but American consumers prefer the taste of corn-fed livestock.

"Consumers themselves will dictate retail beef prices to some degree. If consumers turn up their noses at expensive beef in the the grocery store meat case and choose cheaper chicken and pork instead, then there will be a limit to how far retail beef prices can rise," she notes.

"That said, over time, if ranchers and processors can't make money, they'll raise and slaughter fewer cattle. Cattle futures hit a 22-week high this week on precisely these concerns," said Gabbett.

Questions? Comments? marketinsider@cnbc.com

High oil prices and a wary skittishness among traders keeps the pressure on stocks going into Thursday's session.

Weekly jobless data, reported at 8:30 a.m., is the big number ahead of Thursday's bell. The Philadelphia Fed survey and leading indicators are released at 10 a.m.

Wednesday's market was another sloppy day, as traders had warned. The Dow finished at a three-month low after taking a dive under the 12,000 level for the first time since March 17. It closed at 12,029, down 1 percent. The S&P 500 was off nearly a percent at 1337.81.

Oil was a big factor for Wednesday's market, moving up amid news of a strike threat in Nigeria. Oil finished up $2.67 per barrel or 2 percent to $136.68, reversing three days of losses.

UBS director of floor operations Art Cashin said weekly jobless claims will be important to the market if there is a spike. "The Philly Fed could also be important if it is as weak as the New York Fed (Empire State survey)," he said.

Cashin said the market, which closed off its lows could have been worse Wednesday. "The S and P held twice in the afternoon at precisely the same level - 1333, and the Dow, which needed to hold 12,000, got just very marginally below. So, from a cocktail napkin charting system that would be a hold. Those two things averted going off a cliff," he said.

Financials were again among the worst performers, down 1.2 percent. Consumer discretionary stocks were the worst, off 1.9 percent, followed by technology, down 1.3 percent.

There's a bearishness surrounding the stock market as we head into the second quarter's close.

Dan Niles, technology analyst with Neuberger Berman, appeared on "Closing Bell" Wednesday. He said the housing market and oil are obstacles to the consumer and we haven't seen the worst impact of high oil prices yet. He also said the rebate checks are giving the economy an artificial buoyancy.

"We're probably the most defensive we've been in the portfolio in a number of years now," he said. "What we're trying to do is assess what businesses actually benefit from this," said Niles.

One stock he likes is MEMC Electronic , which provides solar wafers to the solar industry. "Their business is booming. We're also buying more shares of eBay today." He called eBay a "Wal-mart" of the internet, where people shop for bargains in a soft economy.

Stocks in the News

Speaking of eBay, it holds its annual meeting Thursday. Biogen Idec is also holding its meeting. Investor Carl Icahn proposes a slate of three directors for the company's 12-member board.

Also worth watching is the Bank of America homebuilder conference in New York.

Flood-onomics

President Bush turns his focus to the Midwest floods with a visit to Cedar Rapids, Iowa Thursday. Corn prices Wednesday traded close to $8 a bushel on worries that the flood damaged fields are in worse shape than expected.

The flooding is taking a serious toll on farming and business in the area, and the full impact has yet to be seen. Businesses remain under water, and railroads are diverting trains around miles of closed tracks. As Union Pacific has warned, it will take a bite out of earnings.

Deutsche Bank's chief U.S. economist Joseph LaVorgna says the flooding in the Midwest could also impact jobs data, and he is considering a downward revision to his June employment forecast. Thursday's jobless claims could show some clues about the potential impact, he says.

We know meat producers are already under pressure from high grain prices, and the flood is making that worse. Tyson Foods shares fell sharply Thursday after Fitch cut its debt rating to junk. Fitch said higher-than-expected grain costs and the length of time required to pass through those higher prices is cutting into profitability in the company's chicken business.

I wanted to learn more about this situation because it will no doubt hit the consumer hard. I spoke with friend and former colleague Janie Gabbett, who is the executive editor of meatingplace.com , a trade publisher for meat producers.

She pointed out that the meat processors were petitioning the EPA Thursday in an effort to get them to waive the ethanol mandate. They contend the required supply of corn for ethanol is competing with corn needed for livestock.

"The meat industry was already upset about the ethanol mandate. The need for corn for ethanol had already boosted corn prices. Now with the corn crop really under pressure, they are looking for anything to relieve escalating prices," she said.

"The USDA estimates 4 billion bushels would go to ethanol. They estimated the U.S. corn crop would be about 11.7 billion bushels, and this was before the impact of this week's flooding," she said. She noted that Farm Futures magazine is now estimating up to 3.3 million acres of farm land could be flooded.

I asked Gabbett how much meat prices are expected to rise, and she said the answer is complicated. Cattle can be fed things other than corn, but American consumers prefer the taste of corn fed livestock.

"Consumers themselves will dictate retail beef prices to some degree. If consumers turn up their noses at expensive beef in the the grocery store meat case and choose cheaper chicken and pork instead, then there will be a limit to how far retail beef prices can rise," she notes. "That said, over time, if ranchers and processors can't make money, they'll raise and slaughter fewer cattle. Cattle futures hit a 22-week high this week on precisely these concerns."

Questions? Comments? marketinsider@cnbc.com

As President Bush calls on Congress to drill for oil offshore, the Senate again stalls on tax credits for solar energy.

There's certainly some irony in this. As we saw, there was early reaction in the stocks today. Drilling play (Transocean ) was up, and solars (First Solar and SunPower ) were down.

Portfolio of Solutions
Cambridge Energy Research chairman Daniel Yergin says the longer term solution to the energy crisis will be a mix of different sources — fossil fuels and alternative energy.

"We should have a portfolio of solutions. All of these are part of the solution. It's not an either or ... not in our $14 trillion economy. We don't have the clear luxury of just either," said Yergin, CNBC's global energy analyst.

That's probably not a bad way to think when putting together your own energy portfolio.

Yergin says wind energy right now has the edge among renewables. In fact, you probably noticed there are some new ETFs in the wind sector — PowerShares and First Trust both filed for them. In fact, First Trust ISE Global Wind Energy ETF started trading today.

Drill, Drill, Drill
President Bush this morning joined the chorus who say Congress should lift the ban on drilling offshore and the Alaska National Wildlife Reserve. He says there could be some 18 billion barrels offshore and another 10 billion in ANWR.

Yergin says it's unclear what really lies in the untapped waters off the U.S. coastline. "The truth is you don't know until you explore it. We really haven't done any seismic tests since the 1970s," he said. He agreed with President Bush though that technology is better and therefore there are less risks to the environment than there were decades ago.

In terms of exploration, "You can know a lot more now with technology than you could 10 years ago," he said.

Merrill Lynch vice chairman Tom Petrie shares a similar view on ANWR. "We do not know whether or how much oil is in ANWR so we should at least drill to know whether it is even an option. That can be done with minimal environmental impact. Then we can make an informed decision about whether to pursue development of ANWR or not. The one well drilled in the area is inconclusive as to the prospectivity of the area," he wrote.

Let the Sun Shine
The Senate late yesterday once more stalled on a bill that would extend tax credits for solar PV. In a note today, Citigroup analysts said the firm's Washington sources expect to see a lot of wrangling around the issue through the end of the summer, and they do not expect a compromise until fall.

Citi says Senate Republicans do not want to set the precedent of using tax increases to pay for the extensions of existing tax policy while Democrats are urging business and others to pressure Republicans to adopt it.

Citi says Sun Power is the most leveraged to the passage of the bill and while it has upside potential, headline risks are high until the bill is passed. Citi also says in its report that it rates First Solar its favorite solar play even at current prices. It rates the stock a speculative risk due to high earnings and stock price volatility, with a target of $450 per share.

"We believe that solar stocks in general, should trade at a premium to the broader market given fundamental demand drivers that should fuel earnings growth well above that of the boarder S&P 500 in coming years," Citi analysts wrote.

Yet, they say they "realize that current valuations for many solar stocks are likely unsustainably high and will compress over the longer-term."

I found this item from the San Jose Mercury News this week. The paper quotes a report that says solar energy costs could be about the same as power from coal, nuclear and natural gas in about a decade with significant investment. That price parity would then result in more adaptation to solar which would potentially take it to 10 percent of electricity generation in the U.S. by 2025.

The newspaper quotes the Utility Solar Assessment Study, produced by non-profit Co-op America and Clean Edge research firm, which forecasts that the cost of solar will drop from an average $5.50 to $7 for a peak watt currently to $1.43 to 1.62 by 2025. The report also says that the efficiencies will only come from the concerted efforts of solar companies and will cost from $450 to $560 billion between now and 2025.

Questions? Comments? marketinsider@cnbc.com

Sloppy and choppy was the market trend Tuesday, and there's signs it could continue into Wednesday with no economic data on the horizon to drive stocks.

But there is oil inventory data at 10:35 a.m., and with oil prices the biggest economic indicator of all lately, stock traders will be watching the energy market carefully to see if the weekly data moves crude. Platts survey of analysts shows expectations for a draw down of two million barrels of crude last week and increases of 950,000 barrels of gasoline and 1.8 million barrels of distillates.

There are also earnings from Morgan Stanley and FedEx . FedEx is expected to show the impact of high fuel costs on its margins, and its shipping business too will be watched as an indicator of economic activity.

Fickle on the Financials

The group the market loves to hate dominated trading Tuesday and could again Wednesday. Morgan Stanley's second quarter earnings report follows on better-than-expected results from Goldman Sachs Tuesday. Goldman's stock though lost its early gains, and the entire financial sector took a nasty beating. The sector was 2.9 percent lower on the day.

Not helping the group was a report from Goldman Sachs analysts who said banks need to raise another $65 billion to cover losses and the losses in the sector will not peak until 2009.

Saudi Spigot

Economist Jared Bernstein of the Economic Policy Institute says he's watching those oil inventory numbers Wednesday. He said oil is trading like it's in a bubble. But he thinks we are in for a period of high prices even if it does come off its highs, and that will drag on the economy.

"I'm looking at a period where the economy kind of creeps along where it's been for awhile," he said, describing the economy as moving in an "L" shape, a period of below trend growth. "I don't see energy prices letting up but I wouldn't bet a lot on it because we've been surprised before."

Bernstein, a CNBC contributor, says there's a lot of calls for new drilling, yet he thinks that conservation is one easy way to cut demand and prices. President Bush Wednesday is expected to call on Congress to approve legislation to lift the ban on offshore drilling .

M.F. Global senior vice president John Kilduff said the energy market is also looking past the inventory data to the weekend meeting of major oil producers and consumers in Saudi Arabia.

"I think the Saudis are going to announce a number of things. They'll increase production, give further discounts on the sour (crude), and they're going to give some details on the new field that's coming on," he said. He said they will come up with a "harder and faster" production schedule and outline plans to add refining capacity.

Interestingly, Kilduff thinks they could talk up the dollar. "I think they're going to call for some kind of action on the dollar but maybe not as far as intervention," he said.

Also in the News

San Francisco Fed President Janet Yellen speaks at 11:45 a.m. at a Fed conference on "The Changing Landscape: Asia's Rose in Global Finance."

In Washington, President Bush meets with the Chinese delegation the U.S.-China Strategic Economic Dialogue on their second day of meetings. Treasury Secretary Hank Paulson said he hopes the U.S. and China can cooperate on energy and the environment at the start of the two days of talks, and a Chinese official said that China intends to make energy prices better reflect market fundamentals.

Government subsidies have been blamed for keeping global energy prices high.

Questions? Comments? marketinsider@cnbc.com

They're like evil twins scaring the stock market.

High oil prices and the credit crunch. The stock market will have to put one or both aside in order to move ahead.

But what might help it in Thursday's market is the foaming, $46.3 billion unsolicited bid for Anheuser-Busch from Belgian brewer InBev, a bid Bud looks poised to resist. Bud stock popped on the after hours news, but it had started moving up in the 3 p.m. hour after CNBC's David Faber reported an offer was getting close.

"Corporate America is on sale. $46 billion sounds like a lot but $30 billion odd euros is a lot cheaper. I think the big story is the weakness of the dollar," said Vince Farrell, managing partner with Scotsman Capital and a CNBC contributor.

Farrell said the Bud bid could help the market shake off some of its worry Thursday, but only if oil prices simmer down. Thomson Reuters says the Bud proposal is the largest announced U.S. takeover offer in 2008 and would be the second largest global deal of the year. The deal would also be the third largest foreign acquisition of a U.S. company if it takes place.

Ahead of Thursday's open, there is early data that will be telling about the consumer - May's retail sales - at 8:30 a.m. There are also weekly jobless claims at 8:30 a.m.; import/export prices at 8:30 and then business inventories at 10 a.m.

There's more Fed speak in store, too. Philadelphia Fed President Charles Plosser will talk to CNBC senior economic correspondent Steve Liesman on "Squawk Box."

Fear of Financials

The nervousness that gripped financial stocks during the worst days of the credit crisis has been creeping back into the market with Lehman's poor market performance topping the list. The S&P financial sector lost 3.3 percent Wednesday as Wall Street traded on a renewed fear of itself (i.e. its investment banks).

"It's really about Lehman and oil, and if Lehman doesn't bounce, we don't bounce," said stock trader Todd Leone of Cowen. "There's no reason to buy the market," Leone said just before the close. "It's a lot psychological too."

The Dow lost 205 points, or 1.7 percent to 12,083, while the S&P fell 22 or 1.7 percent to 1335. The Nasdaq slumped 54, or 2.2 percent to 2394. Oil meanwhile, spiked $5.07 per barrel or 3.9 percent to $136.38 as the dollar slid 0.64 against the euro and 0.45 against the yen.

Lehman stock was down $3.75, or 13.6 percent to $23.75, well below the secondary offering at $28 Lehman announced earlier in the week. The stock has lost 29.8 percent in the last four sessions, and hit its lowest level since October, 2002.

Lehman continues to have its defenders and detractors. Larry Fink, who heads BlackRock, said his firm bought into the secondary offering, and he does not view Lehman as a Bear Stearns equivalent, as many in the market fear.

Oppenheimer analyst Meredith Whitney said on "Closing Bell" that Lehman is being picked on because its the smallest firm , but that unlike Bear Stearns, it has a real business mix. She said other financial firms could see their stocks decline sharply.

Inflation is the talking point this week, and that theme will play again in Wednesday's stock market when Fed Vice Chairman Donald Kohn weighs in on the topic. The Fed also releases its beige book on the economy at 2 p.m.

Kohn participates in an 11:30 a.m. panel on "Lessons for Central Bankers" at the Boston Fed's conference on inflation. Fed Chairman Ben Bernanke's spoke at the same conference Monday night and warned that the Fed is on heightened alert against inflation.

That reinforced the market's view that that the Fed is setting up to reverse course and start raising rates, a positive for the dollar. It's also a double edged worry for some in the stock market, who would like to see the dollar strengthen and topple commodity prices but also fear higher interest rates could reduce liquidity.

Bernanke and other Fed officials have been peppering their remarks with heightened concern about inflation since Bernanke's June 3 speech to the International Monetary Conference. Despite competing comments about inflation fighting from the European Central Bank, the dollar is finding a firmer footing. On Tuesday, that dollar move contributed to oil's slide. The dollar rose 1.1 percent against the euro and 1 percent against the yen Tuesday.

Oil finished at $131.31, off $3.04 per barrel. It also moved in part on a report from CNBC anchor Melissa Francis, who said Saudi oil sources told her they were increasing production by 500,000 barrels. They also called the price of oil "unacceptable."

The Saudis have called for a global meeting of oil producers and consumers for June 22 in Jeddah to discuss oil prices.

Econorama

Michael Darda, chief economist for MKM Partners, said he thinks the Fed's beige book will reflect the Fed's view that the economy is basically under control. "I think by and large the market is now sniffing out a recovery and pricing in a series of interest rate increases, and the Fed is fanning those expectations," said Darda. He said data has been better than expected with the exception of the scary 5.5 percent unemployment rate reported Friday.

"I think they're (the Fed) realizing the bulk of Wall Street was in this fantasy land that the Fed could ease and that inflation was going to fall because the economy was weak ... The most widely anticipated recession in the history of man looks elusive," said Darda.

On Wednesday, Fed Governor Randall Kroszner also speaks on consumer credit markets in Cleveland at 12:15 p.m.

The Dow finished up 9 and the S&P was down 3 after stocks tracked moves in the oil market much of the day. The Nasdaq lost 10.

Stocks in the News

Lehman stock continued to get crushed Tuesday. Lehman on Monday said it lost $2.8 billion in the second quarter and that it was raising $6 billion, a move analysts see as highly dilutive.

Ladenburg Thalmann analyst Richard Bove said he believes that Lehman "simply screwed" up several times recently, and that is not helping it recover confidence. He said they appear to have booked profits on liabilities this past quarter, "which the street really hates." He also said the firm took a hit selling assets after loading $95 billion onto its balance sheet in the first quarter, and it also made a costly mistake hedging in the most recent quarter.

"If things were doing well, they wouldn't feel the need to do things like this.. Last week when they were buying back stock, that's what a junior trader would do to show bravado when everybody knows he's weak," he said.

Bove follows banks as well as brokers. In a discussion about the industry, he said prices have gotten to the level where there could be a new wave of deal making.

One stock he sees as a merger candidate is Washington Mutual , a perennial rumor stock. That stock was up sharply Tuesday after being battered Monday.

"The issue that people are forgetting, and they're forgetting that with all bank stocks at the moment, is that Wamu has $188 billion in deposits. The value of those deposits are roughly $27 billion dollars if you were to sell them in a block in the open market," he said. "... the value of the deposits is three times greater than the value of the company."

Speaking of deals, its worth watching for headlines from the Wall Street Journal Deal and Deal Makers conference Wednesday. BlackRock's Larry Fink and Bank of America CEO Ken Lewis are among the speakers.

Continental Airlines and Caterpillar hold annual meetings Wednesday.

Amber Waves of Inflation

Rising grain prices have been one of the biggest worries when it comes to food inflation, and the move up in corn is being watched closely. Corn futures rose Tuesday to a record $6.732 after the U.S. Department of Agriculture said the 2009 season will result in three percent less corn than previously expected. The yield would be the lowest in 13 years and 10 percent lower than this year.

Oil Shock

Dan Yergin, chairman of Cambridge Energy Research Associates, checked in with us yesterday from Moscow, on his way to Astana, the capital of Kazakhstan. Yergin, CNBC global energy analyst, sent the following message:

"Whatever the view at lower levels of prices, there's no question that the world is now in another oil shock and that means we've moved into a break point scenario, where the response to higher prices, in terms of greater efficiency, will become increasingly clear over time. The politics are already there -- and getting stronger. Right now, the market seems to be responding only to things that drive the price up further. The premise seems to be that demand is on the same course that it was a year ago. But that was a very different another price level, and demand is on a different course.

Today one of the main factors in the market was a new report from the International Energy Agency. But the IEA is sometimes misunderstood. A major theme of the IEA is not that the world is physically short of resources, but that investment is not happening at the pace that is necessary to meet demand.

Investment was one of the big themes at the St. Petersburg Economic Forum over the "white nights" weekend, which was the showcase for the new President Dimtri Medvedev, and which was attended by several thousand people -- including quite a number of Western CEOs. Russia is one of the world's two top oil producers, but its production has flattened out because almost all revenues above $25 a barrel go to the government in the form of tax. Meanwhile costs have gone through the roof. That flattening out is alarming the Kremlin, and the government made clear at the forum that there are going to be changes in the tax regime to try to rekindle production growth.

You can see the building response to price in everything from the Saudi message about stepping up production to the comments from the president of the European Central Bank warning about the risks of a new oil shock."

Questions? Comments? marketinsider@cnbc.com