Stocks slump after rally
Wall Street retreats after surging 21% in 2 1/2 weeks.
NEW YORK (CNNMoney.com) -- Stocks retreated Tuesday, led by financial, retail and transportation shares as investors bailed out of a variety of stocks after the recent retreat.
The Dow Jones industrial average (INDU) slumped 240 points or 2.7%. The Standard & Poor's 500 (SPX) index lost 2.3% and the Nasdaq composite (COMP) lost 1.6%.
Stocks had been on both sides of unchanged through the session as investors digested the day's batch of negative corporate news and kept an eye on the latest news on a potential automaker loan package. But stocks turned decidedly negative in the afternoon.
An agreement on a loan package for the auto industry had been expected late Monday. But lawmakers were still debating the details Tuesday, with a package now expected later today or Wednesday.
The back-and-forth was perhaps causing some of the stock weakness Tuesday, with investors eager to see a resolution, said Ron Kiddoo, chief investment officer at Cozad Asset Management.
"The automaker talk is part of it, but really we've had some pretty good moves off that Nov. 20 low and so people are taking a breather," he said.
Since hitting the most recent bear market lows on Nov. 20, stocks, as represented by the S&P 500, had risen 21% through Monday's close.
Monday was a big day on Wall Street, with all three major gauges gaining at least 3.5% in response to President-elect Barack Obama's plan to create 2.5 million jobs by 2011 and reports that a bailout for the automakers is en route.
Company news: Package-delivery firm FedEx (FDX, Fortune 500) warned late Monday that fiscal 2009 earnings won't meet earlier forecasts due to the impact of the slowing economy. Shares lost 14.5%. Competitor UPS (UPS, Fortune 500) slipped 7%.
Both stocks were also under pressure after ratings agency Fitch and brokerage JPMorgan Chase said truckers will be hit hard in 2009 because of the recession. Although a variety of transportation companies will feel the impact of the slowdown, railroads are in better shape to withstand the retreat, Fitch said.
Con-way (CNW), YRC Worldwide (YRCW, Fortune 500) and JB Hunt Transport Services (JBHT) were among the trucker stocks declining.
The Dow Jones Transportation (DJTA) average fell 5.6%. The transports rallied Monday on Obama's plans to modernize buildings and revamp roads.
Sony (SNE) said it is cutting 8,000 jobs worldwide as part of a plan to cut costs by $1.1 billion. Shares gained 2%.
Other companies announcing job cuts included software maker Novellus (NVLS), manufacturer Danaher (DHR, Fortune 500) and the Wyndham Hotel Group (WYN).
In total, the four companies announced around 14,000 in job cuts.
Walt Disney (DIS, Fortune 500) said bookings at its hotels and theme parks have improved, thanks to discounts, but ad sales remain weak. Shares lost 5.6%.
Texas Instruments (TXN, Fortune 500) warned late Monday that current-quarter earnings and sales won't meet earlier forecasts. Fellow chipmakers Broadcom (BRCM) and Altera (ALTR) also warned Monday that fiscal fourth-quarter sales won't meet forecasts.
And chipmaker National Semiconductor (NSM) reported a big drop in fiscal second-quarter sales and warned that current-quarter revenue would drop from the previous quarter.
Despite the news, all four chip stocks gained Monday.
Market breadth was negative. On the New York Stock Exchange, losers topped winners by over two to one on volume of 1.44 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 2.32 billion shares.
Automakers: Lawmakers continue to debate a $15 billion loan package for GM and Chrysler that would keep the automakers from declaring bankruptcy. The plan would be something of a stopgap measure that would tide the automakers over in order for the new Congress and incoming Obama administration to come up with a longer-term plan for the industry.
Wall Street economists and other market pros are worried that the failure of any one of the Big Three could trigger massive job losses and send the U.S. deeper into recession. (Full story)
GM (GM, Fortune 500) shares fell 4.7%, while Ford Motor (F, Fortune 500) lost 4%.
The U.S. has officially been in a recession since December 2007, with the collapse of the housing market and subsequent credit crisis causing the economy to weaken and consumer spending to wither.
Tuesday brought one piece of economic news that was not as weak as had been expected. A report showed that October pending home sales fell 0.7% from the previous month versus forecasts for a drop of 3%.
Bonds: Treasury prices gained, lowering the yield on the benchmark 10-year note to 2.63 from 2.74% late Monday. The 10-year yield dipped below 3% last month for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
Lending rates improved modestly. The 3-month Libor rate slipped to 2.16% from 2.19% Monday, according to Bloomberg. The overnight Libor fell to a new record low of 0.14% from 0.19% Monday. Libor is a key bank lending rate.
Other markets: The dollar declined versus the yen and gained against the euro.
U.S. light crude oil for January delivery fell $1.64 to settle at $42.07 a barrel, after ending the previous session at a four-year low.
COMEX gold for February delivery jumped $4.90 to settle at $774.20 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.8 cents to a national average of $1.698 a gallon, according to a survey of credit-card swipes released Tuesday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 56%. 
