U.S. Stocks Fall On Earnings, Subprime Jitters
NEW YORK (MarketWatch) -- U.S. stocks fell on Tuesday, with investor enthusiasm hit right at the outset of earnings season after both Home Depot Inc. and Sears Holdings lowered their forecasts, while concerns about housing and credit markets were revived by a possible rating action from Standard & Poor's.
Crude oil prices briefly topping $73 a barrel added to the market's nervousness. A speech by Federal Reserve Chairman Ben Bernanke, meanwhile, failed to shed light on the central bank's plans for interest rates.
"The market has been down all day," said Jay Suskind, director of trading at Ryan, Beck & Co. "It's a combination of nervousness that housing isn't rebounding, companies are ratcheting down earnings and S&P is questioning the subprime market, throwing that fear into the market place again."
The Dow Jones Industrial Average was down 87 points at 13,562, recovering from 120 point drop earlier. Of the Dow's 30 components 22 fell, led by financial shares JP Morgan Chase , American Express Co. , and Citigroup Inc. .
Financials came under pressure after S&P said it put $12 billion worth of subprime mortgage-backed securities on CreditWatch negative.
"There are some concerns in regards to the health of the subprime market," said Mike Malone, trading analyst at Cowen & Co. "If it worsens substantially, it could be an issue for the market, even during earnings season."
General Motors was among the few shares bucking the trend, rising 1.8%, thanks to a new upgrade from J.P. Morgan.
The S&P 500 fell 13.5 points to 1,518, while the Nasdaq Composite dropped 20.7 points to 2,649.
Trading volumes showed 1 billion shares exchanging hands on the New York Stock Exchange and 1.5 billion trading on the Nasdaq. Declining issues topped decliners by 23 to 8 on the NYSE and by 21 to 8 on Nasdaq.
By sector, financial shares led the declines, including banks and broker/dealers , such as Goldman Sachs Group Inc. , Lehman Brothers Holdings Inc. and Bear Stearns Companies Inc. .
Two hedge funds owned by Bear Stearns were brought near to collapse due to their heavy exposure to the subprime mortgage-backed securities.
Earnings kick-off fumble
Alcoa Inc. , which kicked off earnings season Monday after the close, rose 0.2% after the aluminum producer said its earnings slipped, but matched analysts' expectations, while revenue was stronger than expected.
A report in a U.K. newspaper also said that BHP Billiton Ltd. is in talks with private equity firms to put together a bid for Alcoa.
The market's focus was "on the kickoff of earnings season, which was less than spectacular with Alcoa," said Art Hogan, chief market strategist at Jefferies & Co. "I don't think that piece of the puzzle will give us any positive momentum."
Dampening sentiment at the outset, both Home Depot and Sears issued profit warnings.
Sears fell 6.9% after forecasting second-quarter profit will decline amid sales drops at both its Kmart discount chain and Sears department store.
Dow component Home Depot rose 1%. Even though it lowered earnings forecasts, the company launched a tender offer for 250 million of its shares. The retailer cut its 2007 profit forecast, saying the soft U.S. housing market is bruising earnings more than management had anticipated just two months ago.
Adding to the jitters about housing, home-building bellwether D.R. Horton Inc. early Tuesday said quarterly orders for new homes fell 40% from a year earlier and that it expects to post a loss after impairment charges.
Other markets
Treasurys rallied, pushing yields below recent highs, as jitters about subprime mortages led to safe haven flows. Bonds could also move later when Bernanke speaks. If the Fed chairman stresses inflation a good deal, his remarks could spark a Treasury selloff in the afternoon.
The benchmark 10-year note last was up 22/32 a 95-23/32 with a yield of 5.05%.
The dollar was weaker, also due to the subprime jitters and ahead of Benanke.
Commodities, which are for the most part dollar denominated, advanced as the dollar fell.
The August crude oil contract was up 66 cents at $72.85 a barrel, after briefly topping $73 a barrel.
The front-month gold contract rose $2.50 to $665 an ounce.
By Nick Godt