Wall Street's terrible Tuesday

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NEW YORK (CNNMoney.com) -- Stocks tumbled Tuesday, continuing the abysmal start to the new year, as investors eyed a sharp jump in consumer credit and a warning from AT&T about its consumer business - and opted to bail out of a variety of sectors.

The Dow Jones industrial average (INDU) lost 1.9 percent, according to early tallies. The broader S&P 500 (INX) index lost 1.8 percent and the Nasdaq (COMPX) composite lost 2.4 percent.

According to early tallies Tuesday, the S&P 500 has lost about 5.5 percent in January so far, the Dow industrials has fallen 5.3 percent and the Nasdaq composite has fallen over 8 percent year-to-date.

"Although the year is very young, it's a discouraging start," said Art Hogan, chief market analyst at Jefferies & Co.

He said that investors are being faced with a barrage of issues that makes the market environment extremely challenging right now, including oil price shocks, nervousness around the presidential election and the risk of stagflation - an environment of slow growth and rising inflation.

Here's a look at what was moving near the close.

Stocks were volatile throughout the session Tuesday as investors considered management shakeups at Bear Stearns and Starbucks, spiking oil and gold prices, more housing market woes and dour comments on the economic outlook from government officials.

Investors tried to push stocks higher in the mid afternoon by scooping up some of the issues that were battered in last week's miserable start to the year, but the gains proved unsustainable.

Sparking the late session retreat: an afternoon report showing consumer credit card debt spiked to the highest level in six months in November, with credit surging to $15.4 billion in the month versus forecasts for a rise to $8.0 billion.

And news reports that Dow component AT&T (T, Fortune 500) said it sees weakness in its consumer business, which sent that stock falling 8 percent.

The market was also at the mercy of technical market factors, with all three major gauges now having fallen 10 percent off the highs hit in November, on a closing level, the technical definition of a market correction. In the next few days, this could spark a much bigger leg down, or bring in a wave of new money as investors seek to buy at lower levels.

Stocks have now fallen for five out of the first six days in 2008, a bad start to the year, or what the Stock Trader's Almanac calls an "early warning sign" for stocks. According to the Almanac, what the S&P 500 does in the first five trading days of the year can correlate with what it does in the full year.

Yet the stat is most accurate when the first five days of the year are positive. When that happens, full-year gains follow 86.1 percent of the time, the Almanac said, looking at results stretching back to 1950. When the first five days are negative, full-year declines followed less than 50 percent of the time.

The housing and mortgage markets were again front and center Tuesday.

The National Association of Realtors said that contracts to sell existing homes fell in November by a steeper-than-expected margin. The group also pushed back its forecast for a price rebound to 2009.

Treasury Secretary Henry Paulson said in a speech that housing market problems are not easing, Briefing.com reported. Meanwhile, Boston Fed president Eric Rosengren said that if forecasts pan out, the United States will see the longest housing investment decline in 50 years.

And builder KB Home (KBH, Fortune 500) reported a steeper-than-expected quarterly loss, all of which sent homebuilding stocks lower.

Rumors that Countrywide Financial (CFC, Fortune 500) could file for bankruptcy in the near term sent that stock and other mortgage bankers lower. Countrywide denied the rumors in the afternoon, but the stock remained under pressure. Also a factor: a New York Times article that said that the company had fabricated letters claiming a borrower under bankruptcy protection owed the company money.

With worries that the economy could be heading into recession, Wall Streeters have been looking to the Federal Reserve to cut short-term interest rates by as much as a half-percentage point at the next policy meeting at the end of January.

Philadelphia Fed President Charles Plosser, speaking Tuesday morning, said that policy decisions are getting harder to make because inflationary pressures are rising and slow economic growth is no longer sufficient to take the edge off pricing pressures. However, he said he wouldn't be opposed to more cuts.

Plosser will be a voting member of the Fed's 2008 policy-setting committee, starting with the January meeting.

In corporate news, Bear Stearns (BSC, Fortune 500) confirmed that its chief executive is stepping down amid the investment bank's big subprime losses, to be replaced by the bank's current president. Shares slumped after rising in the morning on the rumors of the executive shuffle.

Starbucks (SBUX, Fortune 500) said late Monday that it was replacing its CEO with its chairman and former chief executive, as well as closing under-performing stores. Shares rallied Tuesday.

The Starbucks news followed Monday's announcement that McDonald's (MCD, Fortune 500) will unveil its own coffee bars, complete with baristas, at its nearly 14,000 U.S. locations, taking on Starbucks' dominance in the area.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by eight to seven on volume of 1.82 billion shares. On the Nasdaq, decliners topped advancers three to two on volume of 2.59 billion shares.

Treasury prices turned flat, cutting early losses, with the yield on the 10-year note at 3.83 percent, little changed from late Monday. Treasury prices and yields move in opposite directions.

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

U.S. light crude oil for February delivery rose $1.24 to settle at $96.23 a barrel on the New York Mercantile Exchange Tuesday.

COMEX gold for February delivery rallied $18.30 to $880.30 an ounce.