Stocks held slightly lower on a slew of bad news, as troubles in technology, more signs of weakness in the banking system and a reminder that the housing slump is far from thwarted a week-long mostly positive run on Wall Street.
Major indexes backed off the losses they hit after the opening bell, taking a brief dip following a dismal real estate report. Yet despite warnings of earnings trouble across the board in the first quarter, the market avoided a major morning sell-off.
"We're clearly going through a bottoming phase," said Stephen Porpora, of William O'Neill. "We still have some nagging problems like the dollar, commodity prices, oil prices, the financial crisis seems to be coming out. So I say wade in carefully, but the tone of the market is quite good."
Novellus Systems led the S&P losers after it warned that its first-quarter earnings would be lower than expected and its revenue would be at the low end of its forecast range.
Washington Mutual shares also slumped after the bank said it will receive a $7 billion capital injection from private equity firm TPG and other investors.
Loan securitizer First Marblehead saw its shares tumble after the company said it was looking for a new guarantor because one of its partners filed for bankruptcy.
In other banking news, Merrill Lynch, which so far has written down $24 billion in investment related to the U.S. mortgage market, does not plan to raise further capital as it has already raised more than it has lost, Chief Executive John Thain said on Tuesday.
The bank also said it was expecting a $1 billion first-quarter loss and lowered its dividend, sending the message to investors that the banking crisis had not yet passed.
And Bear Stearns front-office employees, including bankers and traders, are expected to find out their employment status on or near April 15, CNBC has learned, while their back-office colleagues will be informed about a week later.
The only upbeat note in the sector came from Morgan Stanley CEO John Thain, who said that although the markets are the most difficult he's seen in 40 years, there are signs that his bank has weathered the worst of the crisis and is poised for recovery.
Also on the plus side, weight-management company NutriSystems saw its shares surge after the company said earnings would be better than expected amid a transitioning into a new CEO.
Analysts' expectations for earnings have worsened. Profits for the Standard & Poor's 500 companies are now expected to be down 12.6 percent from a year ago, according to Thomson Financial. That compares with a 9.9 percent drop expected just last week and a 1.6 percent decline forecast a month ago.
There was growing sentiment that the negative outlook for earnings would prevent the market from putting together a sustained rally, though stability in the financials could act as a backstop for Wall Street.
"We're going to see some weakness this morning, today, the next several days, but the market should find some fairly sold footing as we continue to see funds poured into these financials," said Peter Kenny, managing director at Knight Equities.
The outlook for Advanced Micro Devices employees is also bleak, as the company said Monday it will cut 10 percent of its work force and gave a first-quarter revenue estimate below Wall Street expectations.
In tech, Dell shares slipped premarket, even though CEO Alan Dell said he is optimistic about the company's chances to grow sales and profits this year.
In economic news, pending home sales numbers for Februarywere down by a greater-than-expected 1.9 percent, but the news did little to affect markets, which have mostly priced in the housing slump.
Before the bell, the National Federation of Independent Business said its index of small business optimism fell to the lowest in its 22-year history. The index slipped 3.3 points in March to 89.6 as employers said they would be creating fewer jobs and cutting back on expansion, giving further rise to the belief that a recession either is imminent or has already arrived.