Bulls Take a Pounding

Updated from 4:12 p.m. EDT

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 Quote), Citigroup (C Quote) and American Express (AXP Quote).

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."