Stocks slipped on Wednesday, weighted by a downgrade of 22 banks by Standard and Poor's and a disappointing earnings outlook from economic bellwether FedEx Corp .

S&P in its downgrade cited expectations of more difficult operating conditions because of volatile financial markets and tighter regulation.

Financial stocks fell, with the KBW Bank index <.BKX> down 4.7 percent.

Package delivery company FedEx slid 2.6 percent to $50.05 after reporting fourth-quarter earnings that topped Wall Street estimates but cautioned the operating environment for the next two quarters is expected to be extremely difficult.

FedEx is definitely throwing some water on the notion that the economy was turning, said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.

The market, having bounced so sharply from the March bottom, is needing to see some signs that maybe companies can grow their earnings other than just cutting costs.

Investors will be watching for details of the Obama administration's financial regulatory reform package, due to be announced later on Wednesday. U.S. President Barack Obama will present his proposals at 12:50 p.m.

It will be a world where there are more constraints on balance sheets, more rigorous reporting in derivatives, said Craig Peckham, equity trading strategist at Jefferies & Co in New York. These have potentially negative consequences for financial institutions.

A key report on consumer-level inflation earlier Wednesday was benign, showing that inflation is still not a worry.

The May Consumer Price Index rose 0.1 percent month-over-month after being flat in April, below the median forecast of a Reuters poll of 68 economists for a 0.3 percent increase. Excluding the more volatile food and energy prices, the index rose in line with analyst expectation of a 0.1 percent increase.

The Dow Jones industrial average <.DJI> gained 7.18 points, or 0.08 percent, to 8,511.85. The Standard & Poor's 500 Index <.SPX> dropped 1.54 points, or 0.17 percent, to 910.43. The Nasdaq Composite Index <.IXIC> added 6.99 points, or 0.39 percent, to 1,803.17.

Bright spots included Qualcomm Inc , whose shares rose 2.2 percent to $44.40 after Goldman Sachs added the stock to its conviction buy list while rival Texas Instruments gained 1.9 percent to $21.13 after being upgraded by Banc of America Securities-Merill Lynch to buy from underperform.

In the past two days, the benchmark S&P 500 <.SPX> has dropped more than 3 percent amid concerns that the economic recovery might prove weak and provide very little impetus for earnings growth.

The S&P 500, however, is still up 33.8 percent from its 12-year low of March 9, although it recently punctured its hold above the 200-day moving average intraday -- a crucial technical gauge for market strength -- after closing above it for 12 straight sessions.

(Editing by Padraic Cassidy)