U.S. Stocks Falter After Data; Weak Profits

NEW YORK (MarketWatch) -- U.S. stocks posted solid losses Tuesday after weak results from Wal-Mart Stores Inc., the world's largest retailer, and an anemic outlook from home-improvement retailer Home Depot Inc., fueled concerns about the health of U.S. consumers.

"Wal-Mart's lowered guidance heightened our fear of a consumer spending slowdown perhaps coming to fruition," said Art Hogan, chief market strategist at Jefferies & Co.

The Dow Jones Industrial Average fell 157 points to 13,078, as 27 of its 30 components fell. Big drops in shares of Wal-Mart and Home Depot Inc. offset initial strength in the Dow's technology components, such as Intel Corp. .

"The disappointment from Wal-Mart this morning put an end to the first bounce," Elliot Spar, options/market strategist at Stifel Nicolaus & Co, wrote in an early note.

The S&P 500 index fell 19 points to 1,433, and the Nasdaq Composite declined 27 points to 2,515.

Trading volumes showed 508 million shares exchanging hands on the New York Stock Exchange and 564 million trading on the Nasdaq stock market. Declining issues topped gainers by 5 to 1 on the NYSE, and by 2 to 1 on Nasdaq.

Technology shares earlier received a lift on the public offering of EMC Corp.'s VMware Inc. and as investors await key earnings from tech bellwether Applied Materials Inc. after the close.

"On the plus side is VMware, the largest technology IPO since Google Inc. , as it shows confidence in the sector," said Hogan.

Goldman Sachs Group Inc. fronted declines among brokerage stocks as investors tallied real and likely losses in the industry battered by a credit crisis and subsequent big losses at hedge funds the firms run.

Goldman Sachs was off 4.5%; Morgan Stanley fell 1.8% and Lehman Bros. declined 3.9%.

Consumer woes?

Wal-Mart cut its earnings outlook for the year, saying second-quarter performance was less than expected and many of its customers are under economic pressure. Its stock fell nearly 5.5%.

Wal-Mart, like many of its rivals, has been battling a number of external issues putting a dent in consumers' budgets that include the housing slowdown, higher interest rates and a crunch on credit.

Home Depot reported a 15% profit decline and projected weakness in the housing market would extend into 2008. Its stock was off 3.8%.

Mattel Inc.'s stock slid 3.5% after the toy maker updated its recall list to include toys containing magnets that could kill a child if swallowed, and another on lead paint on a toy car model.

Rate cuts?

With the market worried about a credit crunch and economic growth, some investors are now hoping that the Federal Reserve will be able to cut interest rates sooner than later. Tuesday's data helped somewhat in that regard.

The Labor Department reported a larger-than-expected 0.6% increase in wholesale prices in July, led by a 2.5% rise in energy prices. But excluding food and energy, the core producer price index rose 0.1%, as expected.

And, the U.S. trade deficit narrowed unexpectedly by 1.7% in June to $58.1 billion, the Commerce Department said.

And helping to rekindle concerns about financial markets, UBS fell 3% after Europe's largest bank reported a 79% hike in second-quarter profit, but warned earnings in the second-half would be lower than last year.

Other markets

Crude-oil futures rose on worries over the impact of a potential tropical depression taking shape near the Gulf of Mexico, with crude for September delivery rising 31 cents to $71.93 a barrel on the New York Mercantile Exchange.

The U.S. dollar rose against international peers, following data showing worse-than-forecast euro-zone economic growth and slower-than-forecast U.K. inflation. The dollar was up 0.1% against the yen at 118.39 yen.

Gold futures edged lower, as gains in the dollar weighed on the precious metalGold for December delivery fell $2 to $678.90 an ounce.

Treasury prices came under early pressure, sending yields higher, after the U.S. report on producer-price inflation revealed a larger than expected increase due to rising energy prices. The benchmark 10-year not was off 11/32 at 99 18/32, with a yield of 4.806%, up from Monday's closing level of 4.782%.

On Monday, Wall Street reversed early gains to end slightly lower amid worries over when and where the next credit-related trouble would hit. The Dow industrials ended 3 points lower, the S&P 500 was down a fraction of a point and the Nasdaq Composite declined 2.6 points.

By Kate Gibson