European leaders have been setting the table for a plan that will likely fail to satisfy the financial markets' appetite for detail.
Stocks Tuesday sold off hard in to the close and traders went home, expecting a day of disappointment Wednesday when European leaders are supposed to unveil their bailout plans.
"You're probably only going to get a broad sketch of the plans rather than a lot of the detail on pretty much all of the issues - Greece, the bank recapitalization and the EFSF leverage. The reason for that is they're all interlinked so if you can't make an agreement on Greece, you can't make an agreement on how much capital the banks need," said Deutsche Bank G-10 currency strategist Alan Ruskin. Greek debtholders were reportedly still in disagreement on what size haircut would be taken on Greek debt.
Traders also focused on earnings news Tuesday, which carried with it some high profile disappointments, like 3M in the morning and Amazon.com after the closing bell. Amazon earnings missed estimates, as the Internet giant spent heavily on its new tablet computer. The company also forecast a disappointing fourth quarter, sending its stock sharply lower in after-hours trading.
There were other high fliers that also took a hit. Some, like Netflix threw their own hand grenades. Netflix reported surprising subscriber loss and a weaker forecast after Monday's close and its stock continued lower Tuesday. First Solar plunged 25 percent Tuesday, after it announced the surprising ouster of its CEO, which prompted a flurry of analysts' downgrades.
What to Watch
Wednesday's earnings include Boeing, Ford, ConocoPhillips, GlaxoSmithkline, SAP, Corning, Lockheed Martin and Northop Grumman. Jet Blue, Sprint Nextel, WellPoint Health, American Electric Power and Southern Co also report in the morning. Aflac, Norfolk Southern, Visa and Symantec report after the closing bell.
The markets will also focus on durable goods orders, released at 8:30 a.m. ET and new home sales at 10 a.m. The Treasury also auctions $35 billion in 5-year notes at 1 p.m.
But it's ultimately going to be the degree of satisfaction with Europe's plans that shapes the market day. "I think the letdown is if the practical solutions look incomplete. I always felt that authorities have at least two bites at this cherry. If the markets don't like what they hear and see, they're going to make their feelings known and the authorities are going to react. The tighter deadline, and it's probably not a hard deadline is the G-20, Nov. 4 deadline. The market takes is as a promise every time you have a summit. I think that having these summits is really to get their house in order before Nov. 4," Ruskin said.
Wednesday's summit was hastily called over the weekend when it became clear the leaders could not agree on such key elements as how to use the 440 billion euro European Financial Stability Facility (EFSF) bailout fund or the size of the hair cut on Greek debt.
Italy was in the spotlight Tuesday, as Prime Minister Silvio Berlusconi was fighting to reach agreement on stricter reforms. The cabinet failed to agree to raising the retirement age to 67 from 65, a reform demanded by other European leaders. The measures are needed to meet the demand of European officials, as they try to reach agreement on giving the EFSF more power so that it can help Italy by buying Italian bonds.
"I don't know why everyone was so optimistic," said Art Cashin, director of floor operations at UBS. "There is no grand scheme. They stand around as if they're debating whether to put the rescue check in the green envelope or the blue envelope, when there is no check."
"This is what everybody's skipping — The major event for today was that we leap-frogged from Greece, over Portugal and Spain and on to Italy. Italy is the big, big problem. It is the third biggest debtor nation in the world and it does not have restrained leadership," he said.
Cashin said one of the first events for investors tomorrow should be the German Parliament vote on the plan. "If they think they have problems, they may end up delaying it," he said.
The Dow Tuesday slumped 207 points, or 1.7 percent to 11,706, and the S&P 500 fell 25 points, or 2 percent to 1229. The worst performing group was the financials, down more than 3 percent. Among the losers were M.F. Global , which fell sharply after the broker reported its largest loss ever and its debt was downgraded to the lowest level of investment grade.