(CNN) — Investors are hoping for the best -- and bracing for the worst -- as the fiscal crisis in Washington comes to a head.
U.S. stocks were higher early Wednesday, with the Dow Jones industrial average, the S&P 500 and Nasdaq all recovering after Tuesday's sharp drop.
The gains come as investors wait to see if lawmakers will reach an agreement before Thursday's debt ceiling deadline. A failure to reach an agreement could trigger a default on U.S. debt and chaos in global markets.
Yields on short-term Treasury bills are rising as investors worry about the possibility that the U.S. may not be able to pay all its bills. The U.S. auctions one-month T-bills and one-year notes later Wednesday. and investors will be keeping an eye on those results. Demand was lackluster for bonds sold on Tuesday.
At the same time, gold prices are edging up as investors seek a safe-haven asset.
Rating agency Fitch put the U.S. on notice Tuesday afternoon, warning it could soon downgrade America's credit rating because of the "political brinkmanship" on display in Washington.
U.S. stocks plunged after Standard & Poor's cut the nation's credit rating in 2011, although Treasuries rallied in a somewhat ironic flight to safety. At the time, S&P blamed the political wrangling around the last debt ceiling increase.
There were also plenty of earnings results to parse through Wednesday.
Shares of Bank of America gained after the financial giant reported better-than-expected third quarter results.
Mattel shares jumped after the Barbie and American Girl manufacturer reported quarterly revenue and profits that beat analysts' estimates.
Stanley Black & Decker tumbled roughly 10% after the power tools maker lowered its full-year earnings outlook. The company said it expected "uncertainty created by the U.S. government's sequestration and shutdown" to hurt business and consumer spending.
Meanwhile, shares in BlackRock and PepsiCo inched higher after both firms released quarterly results that topped forecasts. American Express, IBM and eBay are set to report after-hours.
After the bell Tuesday, Twitter announced plans to list on the New York Stock Exchange.
Intel shares slipped after the chipmaker issued a pessimistic outlook for the rest of 2013 and lowered its profit forecast late Tuesday. But shares of Yahoo rose following its earnings report.
European markets were under pressure as investors around the world fret about the political mess in Washington. Asian markets ended mixed.