Stocks Edge Off Lows on Fannie, Freddie News

Meanwhile, credit card company American Express (AXP Quote) got the go-ahead from the Federal Reserve to turn itself into a bank holding company. Such a move would allow American Express to build a deposit base and secure Fed funding.

Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote) had earlier this year successfully petitioned the Fed for bank holding company status.

Separately, the Los Angeles Times reported that Goldman Sachs had been encouraging its clients to bet against California bonds even as it was collecting fees to help California sell the same bonds.

Traders were also checking the automotive sector's vital signs. On Monday, President-elect Obama met with President Bush and suggested that the government offer assistance to the ailing industry. Obama's petition followed a request by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid to expand the $700 billion Troubled Asset Relief Program to include automakers.

General Motors (GM Quote) has lately shown signs that it needs assistance. Late Monday, the carmaker said it would lay off 1,900 factory workers. The announcement followed GM's report of a $2.5 billion quarterly loss on Friday and a Deutsche Bank analyst report targeting GM's stock value at $0.

"It's not going to be pretty, but they need to change their business," said Church. He said a major problem is that consumers aren't excited about buying domestic cars. "They should be on the phone with [Apple CEO] Steve Jobs saying, 'give me your industrial designers.'" He said if the major automakers had a product people actually wanted to buy, legacy costs would still be a factor, but companies like GM wouldn't be talked about as potential bankruptcy candidates.