Traders pointed out that a positive for the market was the outperformance by small caps which have been lagging. The 1.8 percent gain in the Russell 2000 was also significant. The next best was Nasdaq, up a half percent and the Dow and S&P remained negative.
International headlines steered stocks lower early Tuesday, with investors reacting to worries about a Greek election that could help lift the anti-bailout party, and China's move to put in new collateral rules.
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At the same, the stronger November jobs report last week served as a wakeup call when it comes to the Fed. The jobs report, with both strong payrolls and some wage gains, has given the Fed some of the ammo it needs to move toward a rate hike, and another solid report or two could move up the timetable.
"I think the market is looking to that mid-2015 hike, and we're waiting for next week," said Justin Lederer, interest rate strategist at Cantor Fitzgerald. New York Fed President William Dudley last week said that the Fed could raise rates in the middle of 2015.
"Our focus is quickly going to turn to the FOMC (Federal Open Market Committee) and 'considerable time,'" Lederer said. The Fed meets next week, and the market has been widely expecting it will eliminate the language in its statement about holding rates low for a "considerable time."
Traders expect that Fed would be about six months away from a rate hike once the 'considerable time' phrase is dropped.
What to Watch
Wednesday's earnings include Toll Brothers, Costco, Hovnanian, Lands' End and Vera Bradley.
There are mortgage applications at 7 a.m. and EIA data on oil and gas inventories at 10:30 a.m. The Treasury auctions $21 billion in 10-year Treasurys at 1 p.m., and the Federal budget is released at 2 p.m..