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Bulls Take a Pounding

Robert Holmes

Stocks closed sharply lower Tuesday as a weak retail sales report and more trouble in the subprime sector sent investors scurrying to the sidelines.

The selling intensified in the afternoon, leading to a plunge in the Dow Jones Industrial Average of 242.66 points, or 1.97%, to 12,075.96. Twenty-nine of the Dow's 30 components finishes in negative territory, with losses of 3.2% or more in JPMorgan (JPM), Citigroup (C) and American Express (AXP).

The S&P 500 closed down 28.65 points, or 2.04%, to 1377.95, and the Nasdaq Composite sank 51.72 points, or 2.15%, to 2350.57.

"We're still seeing the same problems with the subprime [sector], poor economic data and a declining dollar," said Barry Hyman, equity market strategist with EKN Financial. "This is not a good background for equities. This is an inevitable retest of the bottom, and psychology during this decline is worse during the first drop we saw. Losses are piling up."

The action was reminiscent of Feb. 27, when the Dow sank 416 points for its worst single-day pullback since the market reopened after the terrorist attacks of Sept. 11, 2001. The Nasdaq plunged 97 points, and the S&P 500 gave back 50 points in that session two weeks ago.

"There is a lot less panic out there than two weeks ago, but there might be more to worry about now," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "The problems out there are a little wider than two weeks ago. There is still a lot of fear, so we're closer to the end of finding a bottom."

The Dow is now down 388 points, or 3.1%, for the year. Meanwhile, the S&P 500 has fallen 40 points, or 2.8%. The Nasdaq has given back 65 points, or 2.7%, for 2007.

At the New York Stock Exchange, where trading curbs wento into effect, roughly 3.55 billion shares changed hands. Volume on the Nasdaq reached 2.24 billion. Losers outpaced winners 4 to 1.

"Once trading curbs are put in, it allows people to stabilize in order to slow down the selling," explained Suskind.

Among market subsector losers, the Philadelphia Housing Sector Index fell 3.4%, the Philadelphia/KBW Bank Index dropped 3.3%, the Amex Airline Index was lower by 2.8% and the S&P Retail Index eased 2.5%.

Before the opening bell, the Commerce Department said U.S. retail sales rose a meager 0.1% last month, weaker than expectations for a 0.3% rise. Excluding autos, February sales slipped 0.1%; analysts had anticipated an increase of 0.3%.

"We expected a lackluster number given recent weather conditions, but it was even worse," said Larry Wachtel, senior market analyst with Wachovia Securities. "These data were a little sloppy. They show how choppy the economy really is."

Also on the economic front, the Commerce Department said business sales fell 0.7% in January, while inventories increased 0.2%. Results were in line with forecasts.

Treasury prices were higher following the data. The 10-year note rose 15/32 in price, yielding 4.49%, and the 30-year bond added 21/32 to yield 4.66%.

Meanwhile, worries about the subprime sector, and its potential effect on the economy, continued to filter through the market.

As lender New Century (NEWC) struggled to stay afloat, one of its rivals is now facing its own problems. Accredited Home Lenders (LEND) said it's exploring various options because its cash has been consumed by margin calls and forced loan repurchases. Shares of Accredited Home Lenders tanked, falling 65.2% to $3.97.

In addition, New Century said it has received a grand jury subpoena from the U.S. attorney's office and that the Securities and Exchange Commission is starting a probe into the company. Trading in shares of New Century was halted at $3.21 on the New York Stock Exchange at Monday's opening bell and was subsequently suspended by the exchange. The stock now trades on the Pink Sheets, and finished Tuesday's session at 84 cents.

Also playing a role this week is the simultaneous expiration of four different derivatives. Stock index futures, stock index options, stock options and single stock futures all will be trading for the last time on Friday. The expiration of all four contracts, referred to as quadruple witching, happens quarterly.

In the tech space, Texas Instruments (TXN) tightened its outlook for the current quarter after Monday's close, saying sales should be $3.07 billion to $3.22 billion, with a profit of 29 cents to 33 cents a share.

As a result, the midpoint of TI's guidance was unchanged. Its shares slipped 85 cents, or 2.6%, to $31.74.

Qualcomm (QCOM) had a more positive take on the current quarter. The company raised its earnings and revenue forecast for the period, projecting earnings of 48 cents to 49 cents a share and revenue of $2.1 billion to $2.2 billion. The stock added $1.71, or 4.3%, to finish at $41.83.

Another bright spot was Goldman Sachs (GS), which posted first-quarter earnings of $3.2 billion, or $6.67 a share, up 29% from a year ago and well ahead of estimates. Revenue rose to $12.73 billion, which also beat the Thomson First Call average estimate. However, shares shed $3.57, or 1.8%, to $199.03.

Energy prices turned lower, with oil relinquishing early gains. Crude tumbled 98 cents to close at $57.93 a barrel, its lowest finish since late January. The move comes a day after crude futures fell more than $1. Natural gas eased 2 cents to $6.89 per million British thermal units. Gold was lower by 90 cents to close at $649.40 an ounce.

Overseas, stocks in Asia were mostly lower. Tokyo's Nikkei 225 lost 0.7% to 17,179, and Hong Kong's Hang Seng fell 0.6% to 19,333. London's FTSE 100 was off 0.5% at 6205, and Frankfurt's Xetra DAX was weaker by 0.6% at 6676.