Wall Street's terrible Tuesday

Dow sinks 207 amid credit and consumer concerns

By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Stocks slumped for the fourth straight session Tuesday on fresh worries about the mortgage and credit markets and disappointing profit forecasts from two big retailers, Home Depot and Wal-Mart Stores.

The Dow Jones industrial average (down 207.61 to 13,028.92, Charts) tumbled about 207 points, or 1.6 percent, according to early tallies. The broader S&P 500 (down 26.38 to 1,426.54, Charts) index sank 1.8 percent and the tech-fueled Nasdaq Composite (down 43.12 to 2,499.12, Charts) index slid 1.7 percent.

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Treasury prices rose as investors sought safety, oil rose and gold fell. The dollar gained versus the euro and slid against the yen.

After the close, Applied Materials (Charts, Fortune 500) reported quarterly sales and earnings that edged past estimates.

Stocks opened in mixed territory Tuesday with the Dow and the S&P 500 feeling the impact from retailers and the Nasdaq managing modest gains, thanks to a mild core inflation number in the morning's Producer Price Index (PPI).

However, by midmorning the tone had turned negative, with all three major gauges seeing declines.

In addition to retail sector woes, financial stocks were hit once again on worries about the credit crisis. Additionally, a second look at the PPI, which showed a bigger-than-expected jump on the overall reading may have raised concerns about Wednesday's more closely-watched Consumer Price index (CPI), said Fred Dickson, chief market strategist at D.A. Davidson & Co.

"Today, bad news is outweighing the good news," Dickson said. "PPI was hotter than expected, Wal-Mart's outlook countered Home Depot's better earnings and there are residual concerns relating to the mortgage market."

Stocks have been battered on and off over the last few months on concerns about tightening of credit after a period of great liquidity. Investors have also been sorting through the impact of the slumping housing market, including the collapse of the subprime mortgage market - loans made to consumers with less than ideal credit.

Among the factors reviving some of this uneasiness Tuesday: news that Sentinel Management Group, a money market mutual fund firm for commodities, has asked regulators for permission to halt client withdrawals.

On Monday, Goldman Sachs (down $7.12 to $170.38, Charts, Fortune 500) acknowledged that its computer-driven hedge funds have been ailing and said it was investing $3 billion into one of its funds with the help of some outside investors. Shares slid 4 percent Tuesday. Meanwhile last week, BNP Paribas, France's largest bank, said it had frozen some of its funds because of subprime worries.

Additionally, Countrywide Financial (down $2.15 to $24.46, Charts, Fortune 500), the leading U.S. mortgage lender, slipped 7 percent after the company said that foreclosures and delinquencies rose in July to their highest level in several years.

Thornburg Mortgage (down $6.67 to $7.61, Charts) slumped 40 percent on multiple analyst downgrades amid worries that it will have to cut its dividend because of the tough environment.

"The financials are down pretty hard today, so you have to say that there are continued worries about the brokerages getting hit," said John Merrill, chief investment officer at Tanglewood Capital Management.

Dragging on the Dow was a disappointing profit report and forecast from Wal-Mart Stores (down $2.35 to $43.82, Charts, Fortune 500). Shares of the world's largest retailer fell 5 percent.

Wal-Mart is something of a proxy for the U.S. consumer and if its profit is suffering, that raises fears about overall consumer spending, Merrill said.

"One of the bets that people have fallen back on is that the problems in the housing market will be contained and the consumer will keep consuming," Merrill said. "This raises fears that the problems are spreading."

Fellow Dow retailer Home Depot (down $1.72 to $33.52, Charts, Fortune 500) slipped 2.8 percent after reporting higher-than-expected quarterly earnings on weaker-than-expected quarterly sales. The home improvement retailer also reiterated that its per-share profit will dip as much as 18 percent this year.

Other blue chip losers included McDonald's (down $0.61 to $48.11, Charts, Fortune 500), Boeing (down $2.55 to $97.50, Charts, Fortune 500), Hewlett-Packard (down $1.21 to $47.23, Charts, Fortune 500) and financial stocks AIG (down $1.35 to $63.43, Charts, Fortune 500) and Citigroup (down $0.85 to $45.70, Charts, Fortune 500).

A variety of other financial stocks slumped as well, lowering the Amex Broker/Dealer index by over 2 percent.

Trucking, railroad and airline stocks all fell, dragging down the Dow Jones Transportation (down 161.24 to 4,850.25, Charts) average by 2.8 percent.

Shares of EMC (down $0.71 to $18.34, Charts, Fortune 500) fell in active New York Stock Exchange trade as investors took a 'sell the news' approach to the debut of its spinoff VMware. On the upside, software maker VMware (up $0.00 to $51.00, Charts) surged 73 percent Tuesday morning in its debut as a public company.

And Mattel (down $0.57 to $23.00, Charts, Fortune 500) shares slipped after the toy maker said it's expanding its toy recall to include over 9 million additional toys manufactured in China, as a result of lead paint and loose magnet risks.

Market breadth was negative. On the New York Stock Exchange, losers topped winners by more than four to one on volume of 1.41 billion shares. On the Nasdaq, decliners beat advancers two to one on volume of 1.60 billion shares.

On the economic front, the Producer Price index (PPI), a measure of inflation at the wholesale level, rose 0.6 percent in July, topping forecasts. However, prices excluding volatile food and energy rose just 0.1 percent, short of expectations.

Separately, the U.S. trade gap fell unexpectedly in June, with strong imports countering the impact of higher energy prices.

Treasury prices erased early losses, turning higher, lowering the benchmark 10-year note yield to 4.72 percent from 4.76 percent late Monday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar rose versus the euro and fell versus the yen.

U.S. light crude oil for September delivery rose 76 cents to $72.38 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $1.20 to $679.70 an ounce. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.