The Fed takes center stage Wednesday in a market that will see another deluge of earnings news.
Traders are also watching for more news on the Obama Administration's plans for the Troubled Asset Relief Program (TARP) and the proposal to develop a "bad bank" to hold toxic assets. CNBC's Steve Liesman clarified some aspects of that so-called "aggregator" bank in a report late Tuesday that said the plan is likely to be unveiled next week and could involve the purchase of common equities by the government.
Stocks Tuesday rose for a third day, with the financials up 3.5 percent. Financial stocks rose even more after hours on the CNBC report.
The Dow Tuesday rose 58 points to 8175, while the S&P 500 rose 9 points to 845.
"The market's acting fine with everything we've got going on," said Tim Smalls of Execution LLC. "What remains to be seen is what we'll see with the banks, what we'll see with the stimulus package."
The House of Representatives take up the $825 billion fiscal stimulus package Wednesday.
Smalls said the market showed some resilience when it rose off the 803 level on the S&P 500 last week. "Now we're trading 100 points above the low. That's not a bad little cushion. Are we out of the weeds? No. Are we going to test the lows? We may already have," he said.
"If we get through this week without a big sell off, or a big debacle, I'll take it."
Earnings reports Wednesday morning include AT&T, Boeing, ConocoPhillips, Wells Fargo, Hess, Baker Hughes, Wellpoint, General Dynamics, Legg Mason, Stanley Works and Southern Co. After the bell, Allstate, Murphy Oil, and Starbucks report.
In other corporate news, Bank of America holds a board meeting in Charlotte, N.C. The fate of CEO Ken Lewis is the topic of much speculation on Wall Street after the departure of Merrill Lynch CEO John Thain last week. Thain, who spoke to CNBC's Maria Bartiromo, denied that Merrill suprised Bank of America officials ahead of their merger with deeper losses and said they were made aware of what was going on at Merrill.
The Federal Open Market Committee is expected to release a statement Wednesday at 2:15 p.m., after its second day of meetings. However, there is little it can do in the way of rate cuts since it moved the Fed Funds target rate to a range of 0 to 0.25 percent at its last meeting.
Traders though say there could be some clarity from the Fed on some of its programs, including its plan to buy Treasurys.
Meanwhile, buyers jumped into Treasurys today as the government auctioned $40 billion in two-year notes. "We thought we'd get some cheap notes going into the FOMC. They actually came in pretty well. People had to cover shorts," said Michael Franzese, head of government trading at Standard Chartered.
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The yield on the 10-year fell to 2.519 percent and the two-year fell to 0.809 percent.
Oil took a deep dive Tuesday, losing $4.15 per barrel, or 9 percent to $41.58 on concerns about weak demand. EIA inventory data is released at 10:30 a.m.
Business and government leaders continue to meet Wednesday in Davos, Switzerland at the World Economic Forum.
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