Recession fears slam stocks
Dow and S&P 500 end at two-month lows on concerns about the duration of the recession. Start of second-quarter reporting period in focus too.
NEW YORK (CNNMoney.com) -- Stocks plunged Tuesday, falling to two-month lows, as fears that the market has gotten ahead of any economic recovery were ramped up ahead of the start of the quarterly reporting period.
A selloff in commodity prices took its toll on the underlying stocks, adding to the market weakness and worries about the duration of the recession.
The Dow Jones industrial average (INDU) lost 161 points, or 1.9%, closing at its lowest point since April 28.
The S&P 500 (SPX) index lost 18 points or 2%, closing at its lowest point since May 1.
The Nasdaq (COMP) fell 41 points, or 2.3%, closing at its lowest point since May 27.
Stocks have been inching lower since mid-June as a three-month stock market rally has lost steam.
"Investors are grasping the fact that the recovery, when it does come, may not be as robust as what many hope for," said Robert Siewert, portfolio manager at Glenmede. "While positive GDP would seem likely to return in the third or fourth quarter of this year, investors are starting to look out to what growth will look like next year."
The S&P 500 had spiked 40% on bets that the economy is stabilizing, but a recent bout of mixed news has stalled the advance, culminating with last week's weaker-than-expected June jobs report.
Economic news due later this week includes readings on retail sales, the job market, import and export prices and consumer sentiment.
"This is a very tough recession," said Scott Armiger, portfolio manager at Christiana Bank & Trust Company. "It's not going to be short and shallow like in 2001. We're more than 18 months into it and there doesn't seem to be a catalyst to turn things around."
He said that until the economy shows measurable signs of improvement, stocks are going to be hard-pressed to move much higher.
Underscoring the depth of the recession, a report Tuesday from the Mortgage Bankers Association showed delinquencies on credit cards and other loans jumped to a record 3.23% in the first quarter. That was a modest rise from the previous quarter.
Declines Tuesday were broad-based, with 25 of 30 Dow components sliding. Falling oil prices dragged on Dow oil components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500). The biggest losers were Boeing (BA, Fortune 500), IBM (IBM, Fortune 500), Hewlett-Packard (HPQ, Fortune 500), 3M (MMM, Fortune 500) and United Technologies (UTX, Fortune 500).
Profit reports on tap: Wall Street is also gearing up for the start of the second-quarter reporting period, which unofficially kicks off after the close Wednesday with Dow component Alcoa (AA, Fortune 500).
The aluminum maker is expected to post a loss of 37 cents per share, according to Thomson Reuters estimates. Alcoa earned 65 cents a year ago. Alcoa shares inched higher Tuesday after the company's CEO reportedly said that China's economy has stabilized and that some sectors are coming back.
Next week brings reports from some of Wall Street's biggest financial firms, including Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Citigroup (C, Fortune 500).
However, most quarterly financial reports are due out later in the month. S&P 500 companies are expected to have lost nearly 36% versus a year ago, according to the latest figures from Thomson Reuters.
Market participants will be looking to see not only that companies beat forecasts, but that they provide an encouraging outlook for future quarters.
"People are looking at the second half as an inflection point for economic growth," Siewert said. "Anything that would contradict that would be seen as a negative."
G8: The summit of the world's leading industrialized nations begins Wednesday in L'Aquila, Italy. President Obama is expected to speak about the economic outlook. The leaders of Japan, Britain, France, Italy, Germany, Canada and Russia will also speak.
Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.46% from 3.51% late Thursday. Bond markets were closed Friday. Treasury prices and yields move in opposite directions.
Other markets: In global trade, Asian and European markets tumbled.
Energy prices slipped, with U.S. light crude oil for August delivery falling $1.12 to settle at $62.93 a barrel on the New York Mercantile Exchange.
In currency trading, the dollar gained versus the euro and fell versus the yen.
COMEX gold for August delivery fell $4.80 to settle at $929.10 an ounce.
Market breadth was negative and volume was light. On the New York Stock Exchange, decliners beat advancers three to one on volume of 770 million shares. On the Nasdaq, losers topped winners three to two on volume of 1.69 billion shares. 
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