Wall Street gets smacked
Major gauges fall over 1 percent after series of earnings warnings, more subprime news; investors weigh Bernanke speech.
NEW YORK (CNNMoney.com) -- Troubling earnings forecasts from the retail sector, renewed concerns about the subprime mortgage sector and rising oil prices sent stocks tumbling Tuesday.
The Dow Jones industrial average (down 148.27 to 13,501.70, Charts) sank about 1.1 percent after falling as much as 153 points earlier in the session. The broader S&P 500 (down 21.73 to 1,510.12, Charts) lost 1.4 percent while the tech-fueled Nasdaq (down 30.86 to 2,639.16, Charts) slipped 1.1 percent.
After appearing to subside last week, the recent mess in the subprime mortgage sector re-emerged Tuesday after the credit rating agency Standard & Poor's said it will cut $12 billion of subprime-related debt, saying it expected more delinquent and defaulted U.S. home loans.
After the market close, fellow credit rating agency Moody's cut its rating for 399 residential mortgage-backed securities, which were backed by subprime loans.
Shares of investment banks and other financial firms slipped on the news as shares of J.P. Morgan Chase (down $1.28 to $47.51, Charts, Fortune 500) and Goldman Sachs (down $6.22 to $217.08, Charts, Fortune 500) both fell nearly 3 percent. Bear Stearns (down $5.93 to $137.96, Charts, Fortune 500), which nearly faced a collapse last month of two hedge funds heavily invested in securities backed by subprime mortgages tumbled over 4 percent.
"I think it's definitely weighing on the market," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
A handful of profit warnings however sent stocks lower earlier in the session.
Home improvement retailer Home Depot (Charts, Fortune 500) lowered its earnings outlook for the fiscal year early Tuesday, citing the weakened housing market, although its shares finished up slightly.
The nation's largest home builder, D.R. Horton reported a 40 percent drop in new home orders last quarter and said it expected to post its first quarterly loss since 1995 in the third quarter. D.R. Horton (down $0.39 to $19.40, Charts, Fortune 500) shares ended nearly 2 percent lower.
Rising oil prices also weighed on stocks as U.S. light crude for August climbed 62 cents to $72.81 a barrel.
And the dollar fell to a record low against the euro and eased versus the yen amid continued pessimism about the U.S. currency.
The nervousness about stocks sent some investors seeking the safety of government bonds and Treasury prices jumped, lowering the yield on the 10-year note to 5.03 percent from 5.15 percent late Monday. Bond prices and yields move in opposite directions.
Investors however appeared to largely overlook a speech on inflation by Fed Chairman Bernanke, who said energy price spikes have not led to persistent inflation or a recession in recent years.
Delivering a speech to the National Bureau of Economic Research, the Fed chief said "changes in energy [and food] prices should have relatively little influence on 'core' inflation, that is, inflation excluding the prices of food and energy."
In corporate news, Gemstar-TV Guide (up $0.64 to $5.98, Charts), which publishes TV Guide magazine and the cable channel, announced it had put itself up for sale, sending its shares up about 12 percent.
Dow component and aluminum giant Alcoa extended its outstanding offer to acquire Canadian rival Alcan (down $0.81 to $86.14, Charts) Tuesday, just after posting a dip in quarterly profit that met forecasts after the market close Monday.
Based on individual issues, 25 of the 30 Dow component finished lower.
Market breadth was negative. Losers topped winners by more than 3 to 1 on the New York Stock Exchange as 1.64 billion shares changed hands. On the Nasdaq, decliners beat advancers by nearly 3 to 1 on volume of 2.22 billion shares.
In the only major economic news of the day, the Commerce Department reported that inventories of unsold goods rose more than expected during the month of May.
COMEX gold for August delivery rose $1.90 to $664.40 an ounce.