Stocks Rebound After Two-Day Rout

Stocks rebounded Wednesday after a two-day selloff amid signs of hope in earnings reports.

Bargain hunters are expected to be out trolling for good deals after the Dow Jones Industrial Average and S&P 500 index on Tuesday posted their biggest one-day declines since Feb. 27. The catalysts for Tuesday's super selloff was a sharp drop in a gauge of the services sector, which accounts for 80 percent of the U.S. economy, and comments from a Fed official, who said a "mild recession" is possible.

Before the opening bell Wednesday, the Labor Department reported that the rate of worker productivity growth slowed to a 1.8 percent annual rate in the fourth quarter but still topped economists' expectsations of a 0.4 percent rise. Labor costs increased 2.1 percent.

In other economic news, the Mortgage Bankers Association reported that U.S. mortgage applications, which include both purchase and refinance loans, rose to their highest level in nearly four years last week, fueled by demand for home-purchase loans.

Investors will also have the Super Tuesday primary results to digest. Sen. John McCain extended his lead in the Republican contest, while Senators Clinton and Obama remained in a tight race on the Democratic side.

"A little rebound after yesterday's decline is not so surprising. It's still the same question of the financials continuing to hang over the market," Peter Dunay, investment strategist at Leeb Capital Management, told Reuters. "Beyond financials, earnings seem to be pretty good."

But whether or not the rally will have legs is another question.

"It's going to be a tough day to have a really strong rally," Warren Meyers of Walter J. Dowd told CNBC. "We're in a range now of probably a few hundred points and with some of this downward pressure selling some of the financials it's going to be really tough to sustain a rally."

Disney shares rose after the media and entertainment giant reported its net fell 27%, but earnings blew past expectations amid strong results from its theme park, media and consumer products groups.

Time Warner shares tumbled after the company reported early Wednesday that it missed quarterly profit expectations by a penny and reduced its full-year profit growth target. The second-largest U.S. cable operator offered some encouraging news to investors, posting increases in broadband and phone subscribers as well as sales of "Harry Potter" home videos. The company also said it could still top Wall Street's expectations for 2008 profits.

Shares of Toll Brothers skidded after the largest U.S. luxury home builder said on Wednesday that it expects to report a 22 percent drop in fiscal first-quarter home-building revenue amid a dire housing market. Toll said it expects home-building revenue of $842.7 million for the quarter, down from $1.09 billion a year earlier. Official results are due out on Feb. 27.

Investors will be tuned to Cisco Systems, which reports earnings later today. The world's largest maker of routers, switchers and other networking gear, was hit in November by a dramatic drop in orders from U.S. banks squeezed by the credit crunch. The news of weaker demand sent Cisco shares -- and the tech-heavy Nasdaq -- tumbling. Analysts are expecting earnings of 38 cents a share, compared with 33 cents a share a year earlier. Investors bid the shares higher in early trading.

Basic resources could also be active, after BHP Billitonlaunched a $147.4 billion hostile bid for Rio Tinto, leaving Chinalco and Alcoa -- which own a 9 percent stake in Rio -- to consider options.

Looking to the economy Richmond Federal Reserve President Jeffrey Lacker, who spooked investors Tuesday by saying a "mild recession" is possible, speaks again at 10 am New York time.

Also on the calendar are Fed Governor Randall Kroszner at 12:30 pm and Philadelphia Fed President Charles Plosser at 12:40 pm.