Stocks Slip on Brink of Earnings Season

Stocks slipped Wednesday as investors took a breather after a two-day rally and braced for the start of earnings season.

Techs started to push higher after an analyst upgrade on Cisco.

This comes after a two-day rally, in which stocks gained 2.6 percent, as recent data points have revitalized optimism about the recovery.

But that could all change as earnings season unofficially kicks off today, with the first Dow component, Alcoa, reporting after the bell.

"Earnings season is now upon us, and no one is willing to make a bet after the two-day run-up without seeing the numbers. Today should be a day of less drama as the market gets ready to digest the results," Peter Kenny, managing director at Knight Equity Markets, told Reuters.

Costco and Family Dollar beat expectations this morning, an encouraging sign for the retail sector ahead of chain-store sales, due out tomorrow.

Bank of America was raised to "outperform" by Wells Fargo, the latest in the string of upgrades on the financial sector.

And Citigroup is said to be exploring a possible sale of its Phibro commodities unit.

Cisco led the Dow — and the Nasdaq — after a William Blair analyst upgraded his rating on the stock to "outperform" from "market perform." The analyst said Cisco is winning new deals and generally benefiting from the recovery amid pent-up demand.

Microsoft CEO Steve Ballmer said he doesn't expect the launch of Windows 7 to boost PC sales. rallied after the online marketplace lowered the price of its Kindle e-reader, while expanding its marketing overseas.

Rumor has it that News Corp. chief Rupert Murdoch is in Asia right now, scouting out potential partners for his own e-reader.

Avis Budget Group warned that a recent warrant transaction against the car rental company could impact earnings. Avis on Tuesday offered $250 million in notes along with a warrant transaction. Shares fell 8.8 percent in premarket trading.

In economic news, mortgage applications rose to their highest level since mid-May as interest rates continued to drop.

Among other numbers of note today: The Energy Department is out with the weekly oil inventories data at 10:30 am. Consumer Credit figures for August will be issued by the government at 3 pm.

Following better-than-average demand for 3-year notes in an auction yesterday, the Treasury is back at it again today with a sale of $20 billion in 10-year notes. As usual, the results will be available shortly after 1 pm.

At 10 am, General Motors chief executive Fritz Henderson will be presenting a business update for the automaker, highlighting the progress it's made since its emergence from bankruptcy.

The Washington Post is reporting a probe of Hospital Corp. of America for possible securities law violations.

And Burger King Holdings is announcing an extensive revamp of its 12,000 worldwide locations.

Kansas City Federal Reserve President Thomas Hoenig is also in the news, saying late Tuesday that it's too soon to withdraw the Fed's massive support even though the U.S. economy is clearly rebounding.

- Written by Peter Schacknow, Senior Producer, CNBC Breaking News Desk