U.S. stocks could swoon when the market reopens this morning after the three-day holiday weekend. Futures prices point to a 5 percent decline in the S&P 500, Bloomberg reports. The slide would be the biggest since the tech bubble popped in the spring of 2000 and would come on the heels of sharp selloffs overseas Monday.

The stock plunge is putting pressure on commodity prices: Oil dropped more than $3 a barrel to a six-week low just above $87, and the prices of corn, soybeans and wheat dropped by their daily limit. Lehman Brothers says the U.S. economy is just one shock away from a recession, and economics blogger Michael Shedlock believes the commodity boom is over. But commodities trader Alan Kluis tells Bloomberg television that the commodity selloff is “just about the flow of money” and will make for a buying opportunity in coming weeks. 

The stock market didn’t take kindly to the Federal Reserve’s modest rate cut Tuesday afternoon. The Federal Open Market Committee cut its fed funds overnight lending target by 25 basis points to 4.25 percent and cut its discount rate for emergency borrowing by the same amount, to 4.75 percent. Financial stocks cratered, with brokers Lehman Brothers (LEH) and Bear Stearns (BSC) dropping 5 percent and mortgage lender Countrywide (CFC) dropping 7 percent, on fears that credit will continue to tighten, hurting banks’ bottom lines. Not helping matters some slightly softer-than-expected earnings guidance from onetime market stalwart General Electric (GE).

But what seemed to scare investors most was the Fed’s commentary, which suggested that the central bank isn’t itching to cut rates any more than is absolutely necessary in the face of decent economic numbers and a weakening dollar. Of course, another way to look at that is to point out the disconnect between the weakening economy and the still strong — until this afternoon, at least — stock market.

“It looks like equity traders will be forced to acknowledge what consumers, bond traders, and reality-based observers already know,” writes Michael Panzner on Financial Armageddon. “Conditions and confidence are spiraling downward, and there is not much that those in charge can do about it.” Not for today, at least.

Stocks are rolling higher as investors bet a “pragmatic” Fed will cut rates again next month. Among the biggest gainers are Citi (C), up 7% a day after it posted a 2% decline in spite of a big investment from Abu Dhabi, and Freddie Mac (FRE), up 12% on a plan to sell preferred stock. Many of the other names on the most active list are smaller, less well known names such as bond insurer Security Capital (SCA) and footwear maker Genesco (GCO). Barry Ritholtz compares the market, on the verge of its first two-day winning streak in weeks, to the Knicks — while cautioning that the wild swings suggest a poor market for stocks. But whatever you do, don’t call this a short-covering rally: Bespoke Investment Group says stocks with heavy short interest tend to outperform whenever the market rallies. It’s only a matter of time till someone reminds us this is a stock picker’s market.