Stocks are stuck in the bear market's tight grip and just can't shake loose, even for seemingly good news.
"The market will feel bad until it's not bad. I think that's the phase we're in. We went through the phase where everything looked cheap. That didn't work out so now we're in the phase of: 'I'm not going to buy it because I want to see the news first,'" said Robert Harrington of UBS.
Even with good news Tuesday, the market rallied, then sold off going into the closing bell as economic worries won out. Stocks had been moving up around the Federal Housing Finance Agency's announcement of a new plan to renegotiate hundreds of thousands of delinquent mortgage loans held by Fannie Mae and Freddie Mac. The plan comes as major banks work to renegotiate troubled loans in their own portfolios.
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Stocks staged a midday rally, with the Dow recovering to near breakeven from a decline of about 300 points. Traders said the FHFA plan was perceived as a positive because it would help the beaten down housing market and stave off more foreclosures. But the rally was short lived, and the Dow fell 176 to close at 8693, a decline of about 2 percent. The S&P 500 fell 20 or 2.2 percent to 898.95.
On Monday, stocks reversed early gains from China's stimulus packageand instead fretted over negative headlines.
"The credit market is liquid because of the Fed and central banks, but we really haven't crossed over into that world of confidence again and we may not for a long time," said Harrington, head of block trading at UBS.
On Wednesday, investors will get earnings from Macy's ahead of the bell. Investors may also focus on late Tuesday comments from Goldman Sachs CEO Lloyd Blankfein who said the company plans to focus on its strategy and that it is well positioned to deal with the current environment.
There is no significant economic data Wednesday, but there are several speeches worth watching.
Treasury Secretary Hank Paulson speaks at 10:30 a.m. about the TARP, Troubled Asset Relief Program.
Meanwhile, Democrat Speaker of the House Nancy Pelosi Tuesday afternoon called for aid that would stretch the TARP over the troubled auto industry. The health of struggling auto makers is a new phobia for the markets, which worry a bankruptcy of any of the big three would cause significant ripples through the economy.
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How TARP funds will be used has been a big topic of interest as traders try to game which companies will receive funds and what the government aid will do in terms of fixing the broken economy and credit markets.
"We never threw money at a situation like this before so reading the tea leaves is not so easy," Harrington said.
Other speakers Wednesday include Fed Vice Chairman Donald Kohn who speaks in Luxembourg at 11 a.m. on productivity and innovation in financial services. Minneapolis Fed President Gary Stern speaks to the Minnesota Women's Economic Roundtable at 1 p.m.
The House Financial Services committee will hold a hearing on private sector cooperation with mortgage modifications, which will be attended by executives form Bank of America and J.P. Morgan.
In Tuesday trading, materials and energy stocks were the worst performers, down 4 and 3 percent respectively. The dollar gained 1.68 percent against the euro, taking it to $1.2528 per euro.
Crude oil on the NYMEX fell $3.08 per barrel, or nearly 5 percent, to $59.33, the lowest close since March, 2007. RBOB gasoline futures fell 4.5 percent to $1.3059.