Market Heeds Caution Signs

Homebuilder Lennar(LEN Quote) reported a 73% drop in its earnings and withdrew its outlook for the year. The news came atop KB Home's(KBH Quote) posting an 84% profit decline last week. So, Lennar's report was not such new news. Lennar slid 0.9%, but was down 3.4% in after-hours trading.

After the market closed, Business Week reported that the FBI is investigating the lending practices of homebuilder Beazer Homes(BZH Quote). Beazer fell 2.9% Tuesday, but was off 10.9% in recent after-hours trading.

Elsewhere, cyclically sensitive parts of the market also were weak. The Dow Jones Transportation Average fell 1.2%, while the Morgan Stanley Cyclical Index declined 0.9%, led by Ingersoll-Rand (IR Quote) which lost 3.3%. The S&P Retail Index also slid 1%, paced by weakness in Target (TGT Quote) and Home Depot (HD Quote) on concerns stemming from consumer confidence.

A decline in the Conference Board's consumer confidence index for March also weighed on the market as traders worry that consumers will restrain their spending. But that's not a new fear. Typically, the index reflects recent movements in the stock market. So, after the Feb. 27 plunge, the weakness is not unexpected. The index fell to 107.2 from 111.2 in February.

The decline was due mostly to a drop in expectations for the future, but consumers' assessment of the present increased moderately, and puts the spending concerns somewhat at bay. The respondents were more optimistic about the job market. As long as investors have incomes, spending usually remains robust.