Markets spent Monday reversing some of last week's gains and fretting about the financials and the economy.
On Wall Street Tuesday, a bright spot will be the ticker tape parade for those Super Bowl champion New York Giants. Maybe stocks could be like the Giants. Play crummy all season, and then reverse fortunes in the final minutes.
But headlines from bond insurers and other credit-related sagas could sway markets during the day. There are also some big earnings reports -- including Duke Energy , Avon Products and NYSE Euronext before the bell and Disney after the bell. There is little on the data front, with just the ISM non-manufacturing data release at 10 a.m.
Treasury Secretary Hank Paulson testifies before the Senate Finance Committee on the Administration's budget. Richmond Fed President Jeffrey Lacker speaks Tuesday at a luncheon in Charleston, West Virginia on the economic outlook and he speaks again Wednesday at Marshall University.
It's also "Super Tuesday," when some two dozen states hold primaries. Presidential candidates for one or both parties could become very clear after the polls close, and that story could move Wednesday's markets.
Handicapping The Race
"The important thing to watch from the market's perspective is if (Ariz. Sen. John) McCain can wrap up the Republican nomination tomorrow. Market participants believe that McCain is the best candidate to beat (N.Y. Sen.) Hilary Clinton or (Ill. Sen.. Barak) Obama," said Daniel Clifton, head of policy research at Strategas.
Clifton said the Democratic candidate may not be known and there will probably still be a great deal of uncertainty around the candidate though he noted political futures show that an increase in optimism about Obama's prospects.
"You could see a relief rally from a McCain win," he said, adding it would temporary and that the market has many other factors driving it right now. "If McCain isn't the winner, (Mitt) Romney is still in play and a lot of people think Romney would be a negative for the market based on electability."
Sectors that could be favorably impacted by a McCain victory include health care and energy. But within health care, Clifton said McCain would be as negative as Democrats for big pharma. " He wants to put back price controls and allow reimportation of prescription drugs," he said. McCain also would favor the government being able to negotiate the price of drugs for Medicare programs. "There's not a difference between him and Democrats on big pharma," he said.
For energy, "record profits is a big issue again," Clifton said. "He's not as solid as some of the Republicans on the big energy stuff but the damage would be a lot less under him," than Democrats.
Clifton also said McCain is not open to some of the plans for Fannie Mae and Freddie Mac that the Democrats favor, including removing investment limits. He therefore could be a negative for those stocks.
If neither party has a clear winner Tuesday night? "Markets hate uncertainty, and if you walk out with two uncertain outcomes, for the market that's probably a negative," he said.
Stocks spent Monday in negative territory. Microsoft met in New York with analysts and said it would likely take on debt to fund its proposed $45 billion acquisition of Yahoo . Google stepped into the fray on the weekend, arguing Microsoft would be limiting options on the internet if it were to get Yahoo. Google stock slumped in Monday's session on the prospects of the Microsoft deal and also as some speculated Yahoo might turn to Google for help.
Financial stocks though were at the center of Monday's selling. UBS downgraded American Express , and Merrill Lynch downgraded some bank stocks. The S&P financial sector was down 2.5 percent, the worst performing market sector of the day. Remember that group soared more than 8 percent last week.
The Dow finished Monday off 108 points, or 0.8 percent. The Nasdaq lost 30 or 1.3 percent and the S&P 500 was down 13 points or 1 percent. Crude oil rose $1.06 per barrel, or 1.2 percent to $90.02, its first gain in three sessions. Gold fell $3.80 per troy ounce or 0.4 percent to $904.90.
Ten-year Treasurys, meanwhile, fell 12/32, with the yield rising to 3.643 percent. The two year rose 1/32 points, and yielded 2.06 percent.
CNBC's Rick Santelli made an interesting point to consider when thinking about whether stocks may have reached a bottom. "If most of the anxiety in the stock market has been the aftershocks and tremors from the credit markets, you have to look at those markets. What I'll be looking for is interest rates moving higher for all maturities, led by the short end," he said.
Santelli said the yield on the two-year Treasury would have to get back to a minimum of 2.50 percent. "A smart trader told me today that while some are arriving at the conclusion that you may be seeing a bottoming in equities, that doesn't mean there's a bottoming in interest rates. But if you do see a bottom in interest rates, you definitely will see a bottoming in equities," he said.
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