Markets pause for breath after 2 day rally

Spurred by low valuations, the prospect of the Auto bailout culmination and President-elect Barack Obama's massive infrastructure plan, stocks finished last week on a high and continued that trend Monday, tacking on about 700 points for the Dow during the 2 day span.

A new wave of profit warnings and profitability downgrades have turned Tuesday into gut-check trader's day with the Dow hovering lower by about 250 points into the close. FedEx (FDX) plunged today after its forecasts took a hit due to current and forward looking economic troubles. FedEX shares were off about 14% after citing "significantly weaker" economics and talking about profit expectations that were lower than Wall Street was anticipating.

National Semiconductor (NSM) predicted a quarterly revenue drop of 30% and Texas Instruments (TXN) followed up by reducing internal quarterly estimates for Revenue and Profit. NSM and TXN were able to shake off the negativity and closed higher by 13% and 4% respectively.

This certainly goes to show that even though recovery is on the radar and the minds of traders, the valuation game will still be played on a day to day basis and stocks, which appear cheap, continue to downgrade their own profitability.

Disclosure: Author holds no position in above mentioned companies