Stocks set to fall back

NEW YORK (CNNMoney.com) -- U.S. stocks were poised to drop at the start of Wednesday's session, as investors reacted to a slew of quarterly reports from financial services companies and mixed results from economic reports.

Investors also pondered a change in the balance of power in Washington.

The Dow Jones industrial average, S&P 500 and Nasdaq-100 futures were lower. Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.

Wall Street rallied Tuesday, with IBM leading a tech charge ahead of its quarterly results, released after the close of trade. Great expectations lifted the blue-chip Dow 115 points, or 1.1% on Tuesday. The S&P 500 and Nasdaq both rose more than 1%.

"Apparently, all the equity markets needed was an extra day off," wrote Dan Cook, senior market analyst for IG Markets, in a note to investors.

Markets appear to be taking a turn for the worse Wednesday.

Prior to the release of economic reports, Art Hogan, chief market strategist at Jefferies & Co., said that investors will be closely watching a reading on wholesale prices for signs of economic recovery.

"If this economy is truly picking up, we're going to have see some inflation picking up," he said.

Earnings: Bank of America (BAC, Fortune 500) reported a fourth-quarter loss of $5.2 billion, which was worse than the $3.9 billion loss forecast by analyst consensus from Thomson Reuters. The bank said that repaying funds to the Troubled Asset Relief Program hurt its bottom line by $4 billion. But the stock rose in pre-market trading.

Morgan Stanley (MS, Fortune 500) reported a quarterly profit of $413 million, bouncing back from its $10.5 billion loss a year ago. The stock also rose in pre-market activity.

Wells Fargo (WFC, Fortune 500) reported a surprise profit of 8 cents per share, trumping Wall Street's expectations of a loss. That stock gained before the opening bell.

IBM (IBM, Fortune 500) reported quarterly earnings late Tuesday that topped Wall Street's estimates. But shares fell in after-hours trading as investors had hoped for even better results.

Economy: The government released reports on housing starts and building permits, with mixed results.

Building permits soared to an annual rate of 653,000 units in December, according to the Census Bureau. This was much higher than the expected rate of 580,000, according to a consensus of economists surveyed by Briefing.com. That's compared to a revised figure of 589,000 for the prior month.

Housing starts dropped to an annual rate of 557,000 units in December, according to the Census Bureau. Briefing.com consensus had expected at an annual rate of 575,000 for December, according to the Briefing.com consensus. That's compared to the revised figure of 580,000 in November.

The Producer Price Index, a reading of inflation at the wholesale level, rose 0.2% in December, said the Bureau of Labor Statistics. The PPI was expected to be flat for December, according to Briefing.com consensus, after gaining 1.8% the prior month.

The core PPI, which excludes volatile food and energy prices, was flat, the government said.

The Federal Housing Administration is also due to announce stricter standards for getting a government-backed mortgage loan on Wednesday.

Health care: Investors may be on edge after Tuesday's night victory for Republicans in the Massachusetts Senate race.

President Obama's plan to overhaul health care could be derailed following the upset victory, with House Democrats largely rejecting the idea of passing the Senate health care bill.

World markets: Stocks in Asia ended lower, and major European indexes fell in midday trading.

Money and oil: The dollar rose against most major international currencies except for the yen. The price of oil fell $1.19 per barrel to $78.13.

Gold and bonds: The price of gold fell $10 per ounce to $1,130. The price of the 10-year note rose, dropping the yield to 3.64%.