Stocks slump on bank woes
Wall Street retreats as investors eye the latest spate of financial market problems.
NEW YORK (CNNMoney.com) -- Stocks tumbled Tuesday, with blue chips leading the way, as a slew of financial companies warned about the ongoing impact of credit market problems, overshadowing any relief about lower oil prices.
The Dow Jones industrial average (INDU) lost 1.2%, with the average's financial components leading the selloff. The broader Standard & Poor's 500 (SPX) index fell 1.2%. The Nasdaq composite (COMP) dropped 0.4%.
The major gauges were in negative territory for most of the day, although the Nasdaq composite made a few forays into positive territory, thanks to lower oil prices.
"Financial issues are getting hit today on worries about the credit market, as always," said John Forelli, portfolio manager at Independence Investments.
Forelli said the struggle between concerns about the financial sector and relief that some inflationary pressures are dwindling will remain day-to-day for investors in the near term.
"Until oil prices started coming down a few weeks ago, there were twin worries of the economy slowing and inflation accelerating," Forelli said. "Now inflation worries are diminishing, but we are still struggling with the growth side."
He said that these concerns will continue to limit stock moves in the next few weeks and months.
Crude prices have lost over 20% since peaking above $147 a barrel in mid-July, something that has helped stocks recover since hitting 2008 lows in mid-July.
While there's a good probability stocks put in a so-called bottom in mid-July, the negative market psychology is going to continue to keep a lot of investors on the sidelines, said Tom Sowanick, chief investment officer at Clearbrook Financial LLC.
"Because we've been trained in the last 12 months to be fearful, we are going to have to go through a retraining cycle," he said. "Investors need to be convinced that the trend is shifting and the momentum buyers are coming back."
After the close, Applied Materials (AMAT, Fortune 500) reported sales and earnings that tumbled from a year ago due to the tough industry environment. Nonetheless, results edged out analysts' estimates. Shares gained 3% in extended-hours trading.
Wednesday brings key economic reports on July retail sales, June business inventories and the weekly crude inventories report.
Financial sector: JPMorgan Chase (JPM, Fortune 500) said in a regulatory filing that trading conditions have deteriorated in the third quarter versus the second quarter, and that it has written down $1.5 billion in credit market losses in the quarter.
Morgan Stanley (MS, Fortune 500) said late Monday that it will repurchase $4.5 billion in auction-rate securities after the attorney general's office said its investigation of the sale of such securities will include the firm.
The repurchase plan won't stop the investigation from continuing, the attorney general's office said following the news. Also, Moody's cut Morgan's debt rating.
Wachovia (WB, Fortune 500) said it was revising its second-quarter loss to $9.11 billion from $8.86 billion, in advance of any potential settlement it may need to make with the government over auction-rate securities. The bank also said it was cutting 600 more jobs.
Goldman Sachs (GS, Fortune 500) slipped after three banks cut either their rating or earnings forecasts on the investment bank this week.
Deutsche Bank downgraded Goldman to "hold" from "buy" Tuesday and cut its 12-month price target. Also Tuesday, Oppenheimer & Co. cut its third-quarter, full-year and 2009 earnings forecasts. Earlier this week, Ladenburg Thalmann lowered its third-quarter and full-year forecast. (Full story).
UBS (UBS) reported its fourth straight quarterly loss Tuesday and said it would split its investment banking unit from its wealth management unit, after wealthy clients withdrew substantial sums during the quarter.
On the plus side, Wal-Mart Stores (WMT, Fortune 500) and other retailers gained on hopes that lower fuel prices will mean more money is available for consumers to spend elsewhere.
Also reacting to lower oil prices was General Motors (GM, Fortune 500), which gained 8% and protected the Dow industrials from steeper losses. In addition to the oil slide, GM investors were reacting to comments Monday from CEO Rick Wagoner that the worst may be over for the automaker.
Market breadth was negative. On the New York Stock Exchange, losers beat winners 2 to 1 on volume of 1.12 billion shares. On the Nasdaq, decliners topped advancers 4 to 3 on volume of 2.1 billion shares.
Fuel prices: Oil prices slipped even as the dollar fluctuated and concerns about supply disruptions in Eastern Europe stayed front and center.
BP (BP) said Tuesday morning that it shut down a Georgian pipeline for safety reasons. Although Russia said it has halted its attacks on Georgia, unrest in the region remains after days of fighting.
Concerns that the fighting will disrupt crude supply in the region have been tempered by bets that global oil demand is beginning to lessen.
U.S. light crude oil for September delivery fell $1.44 to settle at $113.01 a barrel on the New York Mercantile Exchange Tuesday.
Retail gas prices dropped overnight, extending a downward trend for a 26th day, according to a survey of gas station credit-card activity. (Full story).
Economy: The U.S. deficit unexpectedly narrowed in June, as an increase in exports overshadowed a surge in oil import prices, the government said. The trade gap narrowed to $56.77 billion in June from a revised $59.2 billion in May.
The July federal budget deficit surged to $102.8 billion, topping forecasts and nearly triple the $36.4 billion deficit from July 2007.
Other markets: In the bond market, Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.90% from 3.99% late Monday.
In currency trading, the dollar fell versus the euro and the yen.
COMEX gold for December delivery fell $13.50 to settle at $810.80 an ounce.
In global trading, European and Asian markets mostly ended lower. 
