Wall Street whipsawed

NEW YORK (CNNMoney.com) -- Stocks struggled early Tuesday afternoon, as investors worried about the strength of the consumer amid profit warnings from a pair of retailers, a weak report from homebuilder Lennar, and a big drop in consumer confidence.

In other news, August existing home sales posted a dip, as expected. But on the upside, oil prices dropped around 2 percent.

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The Dow Jones industrial average (Charts) and the broader S&P 500 (Charts) index both inched lower, nearly 2-1/2 hours into the session. The tech-fueled Nasdaq composite (Charts) was barely changed.

Stocks slipped Monday after General Motors was hit by a nationwide strike, which triggered some backtracking on the part of investors after last week's big Fed rate-cut inspired rally.

In addition to the day's news, investors were still caught up in interpreting the Federal Reserve's decision last week to cut interest rates by a half-percentage point, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

"Stocks rallied last week on a knee-jerk reaction to the cut," he said. "Then there was a digestion over the weekend and now people are split into two camps, wondering if the half-point cut is going to keep us out of a recession or drive up inflation."

He said that the personal income and spending report at the end of the week, as well as the report's inflation component, the PCE, will be closely watched, as a result of these concerns.

GM (Charts, Fortune 500) remained in focus Tuesday, with the automaker and the United Auto Workers' union set to resume contract negotiations later today.

Retailers were also in focus, with two major companies warning about profits.

After the close Monday, home improvement retailer Lowe's (Charts, Fortune 500) warned that fiscal 2007 earnings will come in at the low end or slightly below its prior guidance of $1.97 to $2.01 per share.

Lowe's shares slumped and dragged down rival Home Depot (Charts, Fortune 500), a Dow component.

Also late Monday, Target (Charts, Fortune 500) warned that September sales at stores open a year or more, a retail metric called same-store sales, will miss previous estimates.

Target's news weighed on rival Wal-Mart Stores (Charts, Fortune 500).

And in a reflection of the ongoing malaise infecting the housing market, builder Lennar (Charts, Fortune 500) posted a steeper-than-expected quarterly loss.

Maxim Integrated Circuits (Charts) slumped 4 percent, while InterContinental Exchange (Charts) jumped 8 percent, both in heavy trading due to changes in the benchmark S&P 500.

Maxim is being removed from the S&P 500 after the close of trading on Wednesday. The company is scheduled to be delisted by the Nasdaq around the same time. InterContinental is being added to the S&P 500 after the close of trading Tuesday, replacing First Data, which was taken private by Kohlberg Kravis Roberts.

S&P 500 changes typically spark heavy trading in the stocks that are being moved, since index fund managers must adjust their portfolios to accommodate the changes.

On the upside, Microsoft (Charts, Fortune 500) shares rose after the launch of its Halo 3 video game at midnight.

Market breadth was negative. On the New York Stock Exchange, losers topped winners two to one on volume of 520 million shares. On the Nasdaq, decliners beat advancers 4 to 3 on volume of 790 million shares.

On the economic front, consumer confidence in September dropped to a lower-than-expected level of 99.8, according to a Conference Board report released shortly after the open. Economists thought it would ease to 104.5 from an upwardly revised 105.6 in the previous month.

August existing home sales fell to a 5.50 million unit annual rate, from 5.75 million units in the previous month. The drop was in line with forecasts.

Another report showed that July home prices posted the biggest monthly drop in 16 years.

Tuesday was the start of a busy week for economic news, with reports on durable goods orders, GDP, new home sales and personal income and spending due later in the week.

Treasury prices rose, lowering the yield on the 10-year note to 4.58 percent from 4.62 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar bounced off a new record low against the euro hit on Monday, but slipped against the yen.

U.S. light crude oil for November delivery lost $1.71 to $79.25 a barrel on the New York Mercantile Exchange.

Last week, the October contract settled at a record high of $83.32. However, the record price remains below inflation-adjusted highs hit in the early 1980s, which would be equal to at least $95 a barrel today.

COMEX gold for December delivery fell $3.30 to $736 an ounce.