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Stocks Catch Bad Case of Nerves

The Dow slides 103 points while the Nasdaq drops 17.

Updated from 4:08 p.m. EDT

Stocks tumbled Tuesday as rumors of hedge fund losses and concern about upcoming corporate earnings took their toll on a nervous market.


Dow Jones Industrial Average

fell 103.23 points, or 0.99%, to 10,281.11, with only two of its 30 components managing gains. The

S&P 500

lost 12.62 points, or 1.07%, to 1166.22, and the

Nasdaq Composite

fell 16.90, or 0.85%, to 1962.77. The 10-year Treasury note was up 15/32 in price to yield 4.22%, while the dollar was lower against the yen and euro.

Trading volume on the

New York Stock Exchange

was 1.88 billion shares, with decliners beating advancers by a 2-to-1 ratio. Volume on the Nasdaq was 1.60 billion shares, with decliners outpacing advancers 2 to 1.

The main drag on the market was a never-confirmed rumor that hedge funds were caught looking the wrong way on Standard & Poor's downgrade of

General Motors


last Thursday. Traders have speculated that a fund or funds long GM's bonds and short GM equity might have taken hits Wednesday and Thursday, when Kirk Kerkorian's tender offer lifted the stock and S&P cut the debt to junk.

"I've heard those rumors, too, and it makes sense that someone who had the wrong strategy could have been hurt," said Philip Roth, chief technical market analyst with Miller Tabak. "Financial stocks are down more than anything, including the brokers, so it would make sense if it were in fact going on."

The Philadelphia Stock Exchange/KBW Bank Sector Index fell 1.1% to 97.45.

"This whole rumor this morning set the tone so negative that the bottom just fell out," said Larry Peruzzi, equity trader with Boston Company Asset Management. "You can't even blame it on oil today. People are just unloading their positions on concerns that profits have peaked. There's just continued weakness."

"We've had a pretty good run in the last week and we're due for a pullback," said John Hughes, equity strategist with Shields & Co. "You have some people taking advantage of the recent small rally as a profit-taking opportunity. We're at this infancy where the market is trying to put some positive action in place."

Oil rose Tuesday, continuing a weeklong trend that drew inspiration from a stronger-than-expected April employment report. The June crude contract finished up 4 cents to $52.07 a barrel, up 4.7% from its close of $49.72 just one week ago.

Biotech was one of few stronger sectors Tuesday. Weaker areas included financials, energy, health care, homebuilding and semiconductors.

"We're still in a trading range, although volume numbers are hotter than yesterday," said Paul Nolte, director of investments at Hinsdale Associates. "We're seeing more volume on down days, which shows people are unexcited about buying. Even with a blowout nonfarm payroll number, last Friday volume was anemic. It may be that people are taking money off the table."

The airline sector suffered Tuesday after

Delta Air Lines


said in a quarterly filing with the

Securities and Exchange Commission

that it now expects a substantial loss for the remainder of the year as it contends with record-high fuel prices, low air fares and other cost pressures. The filing raises new concerns that Delta may face bankruptcy. Shares dropped 33 cents, or 10%, to $2.97. Delta's loss dragged the Amex Airline index down 3.3%.

GM maintained its 50-cent quarterly dividend after the bell Monday, calming investors who worried last week's debt downgrade threatened the payout. The news came the same day billionaire investor Kirk Kerkorian began an $870 million tender offer for about 5% of the automaker's shares. GM was higher by 20 cents, or 0.6%, to close at $31.53.

In earnings news,


is lower after reporting first-quarter earnings of $4.1 million, or 10 cents a share, down about 4% from a year ago on a 4% increase in revenue to $233.4 million. Adjusted earnings of 21 cents a share topped Wall Street forecasts but revenue was $7 million light. lost $2.70, or 10.1%, to $23.94.

Natural gas company

El Paso


posted a first-quarter profit of $106 million, or 17 cents a share, compared with a loss of $206 million, or 32 cents a share, last year. Analysts expected earnings of 21 cents a share. Earnings before interest and taxes included a net $31 million gain from various asset transactions. The latest quarter also included a $106 million mark-to-market loss on various derivatives. Quarterly revenue fell 22% to $1.21 billion. Shares fell 34 cents, or 3.2%, to $10.21.



, which programs digital audio content, said first-quarter earnings were $889,391, or 3 cents a share, beating estimates by 3 cents. The company also raised full-year revenue guidance to $62 million to $65 million, up from prior guidance of $59 million to $62 million. Audible gained $2.50, or 17.5%, to $16.78.

Domino's Pizza


rose 5.2% after the company posted first-quarter earnings that topped expectations. The company reported a profit of $25 million, or 35 cents a share, up from $18.4 million, or 26 cents a share, a year ago. The Thomson First Call consensus was for earnings of 30 cents a share. Revenue rose to $369.7 million from $318.8 million last year. U.S. same-store sales increased 11% while international same-store sales grew 8.5%. Shares were up 96 cents to close at $19.27.

Watch maker



reported first-quarter earnings of $23.9 million, or 32 cents a share, up from $16.3 million, or 22 cents a share, a year ago. Excluding income from a tax benefit, Fossil would have earned 19 cents a share. Analysts expected a profit of 26 cents a share, according to Thomson First Call. Revenue grew 17% to $232.5 million from $199.4 million. Shares of Fossil tumbled $5.62, or 22.8%, to $19.05.

After the bell Tuesday,



said third-quarter earnings rose to $1.4 billion, or 21 cents a share, compared with $1.2 billion, or 17 cents a share, a year ago. Earnings before items were 23 cents a share, beating expectations by a penny. Shares closed Tuesday unchanged at $18.21.

Emmis Communications


said Tuesday it may sell all or part of the company's TV operations in order to repurchase up to 20.3 million common shares. The company has hired Blackstone Group to advise on the possible sale of the TV assets. The number of shares proposed to be purchased represents about 39% of the outstanding Class A common stock. Shares of Emmis surged $2.99, or 19.3%, to $18.44.

Shares of

Vertex Pharmaceuticals


jumped 19.7% Tuesday after the company reported positive results for its oral hepatitis C virus protease inhibitor. Vertex was up $2.21 to finish at $13.40.

In brokerage action, JMP Securities upgraded

Advanced Micro Devices


to market perform from market outperform, citing improving fundamentals in the processor business area. Shares increased by 2 cents, or 0.1%, to $15.07. Despite the stock's increase, the Philadelphia Semiconductor sector index fell 1%.

A day after posting a first-quarter loss, shares of electricity company



were upgraded by Banc of America Securities to neutral from sell. Dynegy, which gained 12.5% Monday, dipped 4 cents, or 0.9%, to $4.20.

Lehman Brothers upgraded



to overweight from equal-weight, assigning the stock a $19 price target. Lehman believes that the company's handset business is seeing solid trends. Shares were up 2 cents, or 0.1%, to close at $15.79.

Overseas stocks finished lower, with London's FTSE 100 down 0.4% to 4892 and Germany's Xetra DAX falling 1% to 4251. In Asia, Japan's Nikkei slipped 0.1% overnight to 11,159, while Hong Kong's Hang Seng fell 0.5% to 14,018.

On Wednesday, the Commerce Department will release the U.S. trade balance for March, which is expected to increase to a $62 billion deficit from the previous month's $61 billion deficit. The February trade deficit topped November's record high as a weaker dollar failed to provide any force. The reading Wednesday will be examined closely for its effect on the dollar and Treasury rates.

To view Aaron Task's take on today's market, click here.