NEW YORK – Wall Street got another dose of painful reality Tuesday and sent stocks diving as investors recognized that few industries are safe from the consumer spending slump — whether they're building homes, making cars or selling coffee. The Dow Jones industrial average lifted off its lows of the day, but still closed down nearly 180 points.
It became clear to investors that it's going to be hard to rely on the average consumer to pull the economy out of its downturn. Late Monday, Starbucks Corp. reported lower sales across the coffee chain, and early Tuesday, Toll Brothers Inc. posted a sharp drop in revenue and said it was too difficult to predict what the luxury homebuilder's profit would be next year.
Wall Street was also jittery as the nation's feeble automakers await a bailout from the federal government similar to the one given ailing insurer American International Group Inc. General Motors Corp., whose shares have plunged to 60-year lows, said late Monday it would cut 1,900 factory jobs on top of the 3,600 cuts it announced Friday.
Stocks did recover from deeper losses after a media report that quoted a BlackRock executive as saying a $30 billion Bear Stearns mortgage portfolio could be worth more than its market value suggests. And in another promising sign for mortgages, the government announced the largest moves yet to help homeowners renegotiate hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.
But the market ultimately ended lower, acknowledging that although the mortgage crisis that spawned the current economic deterioration is being addressed, the economy remains extremely troubled.
There were no economic reports released Tuesday, since the government and bond markets were closed for Veterans Day. Investors didn't need government data to see that the economy's slide isn't over, though — the litany of troubling corporate news was enough. Wall Street has been anticipating grim results from corporate America, but it cannot gauge yet how bad they could get.
"We're in a situation where we really don't know how deep a recession we're in," said Jim Herrick, manager of equity trading at Baird & Co. "Until there's some clarity on the economy and clarity with earnings, we'll definitely be stuck in this trading range."
The market has been giving back gains recently — including a 248-point advance last Friday — as it tries to recover from October's heavy selling. Stocks pared nearly all of its losses on the report that BlackRock President Robert Kapito said a Bear Stearns mortgage portfolio is generating cash flow, but then sank again. It was the collapse of the subprime mortgage market more than a year ago and a resulting series of financial industry catastrophes that led to the economy's current predicament.
The market is likely to keep following that pattern of quickly giving back gains until investors have a sense that an economic recovery is coalescing. But most assessments of the economy are still quite bleak.
"I think we will, in fact, look back all the way to the 1929 period to see the kind of slowdown we're experiencing now," said Merrill Lynch Chief Executive John Thain at a conference Tuesday. "And the great degree of uncertainty in the marketplace is how deep, how long and what are the governments around the world going to do to try to provide stimulus to the environment?"
The Dow Jones industrial average shed 176.58, or 1.99 percent, to 8,693.96 after falling by more than 300. Tuesday's close was the Dow's lowest since its 5 1/2-year closing low on Oct. 27 of 8,175.77.
The blue chip index has not dipped below the 8,000 mark in trading since Oct. 10, but is down nearly 35 percent since the start of the year.
Broader stock indicators declined as well. The Standard & Poor's 500 index fell 20.26, or 2.20 percent, to 898.95, and the Nasdaq composite index dropped 35.84, or 2.22 percent, to 1,580.90.
The Russell 2000 index of smaller companies fell 10.81, or 2.19 percent, to 482.29.
The Treasury bond market was closed Tuesday for Veterans Day.
The credit markets have eased a bit since Lehman Brothers Holdings Inc.'s bankruptcy in mid-September, but they remain tight. Investors are impatient to see positive developments — in the real economy, not just in market borrowing rates — from the massive government interventions over the past two months, said Alan Gayle, senior investment strategist and director of asset allocation for RidgeWorth Capital Management.
"The market is wondering," Gayle said, "how far does the line go out the door for government assistance?"
AIG got more bailout money Monday, and later that day, American Express Co. got approval from the government to become a commercial bank. The credit card lender will now be able to accept deposits and access the government financing other banks have been using. American Express fell $1.58, or 6.6 percent, to $22.40.
Starbucks shares fell 21 cents, or 2 percent, to $9.99 after the coffee retailer released its earnings, while Toll Brothers slipped 2 cents to $18.93.
GM shares fell 44 cents, or 13 percent, to $2.92, while Ford Motor Co. fell 13 cents, or 6.7 percent, to $1.80.
"It's just not pretty," said Ken Mayland, president of research firm ClearView Economics. "When the alternatives are either socializing GM or having it go through a very painful bankruptcy, neither of those are happy outcomes."
Corporate bankruptcies have been piling up: soon after Circuit City Stores Inc. filed for Chapter 11 protection Monday, the Yellowstone Club — a mountain retreat for the wealthy — did the same, after failing to secure new financing.
Third-quarter earnings declines from Vodafone Group PLC, the world's biggest mobile phone company by sales, and InterContinental Hotels Group PLC, the owner of the Holiday Inn hotel chain, revealed sharp pullbacks in consumer spending. And another round of job cuts were announced Tuesday from companies including Altria Group and Swedish vehicle maker Volvo AB; when companies slash jobs, consumer spending tends to fall further.
It's possible the market is in the process of bottoming out after October's massive losses, but analysts say it will likely keep trading erratically until it starts to see promising signs that Americans are in healthier financial shape.
That could happen, perhaps, if enough homeowners get help with their mortgages. Citigroup became the latest major bank, after similar actions by JPMorgan Chase & Co. and Bank of America Corp., to announce that it will try to keep borrowers at risk of foreclosure in their homes. Citigroup fell 41 cents, or 3.7 percent, to $10.80.
Americans are also getting a bit of a break from tumbling fuel prices. Crude sank to a 20-month low as optimism waned that a huge economic stimulus plan in China will avert a prolonged slowdown in the global economy. Light, sweet crude for December delivery fell $3.08 to $59.11 a barrel on the New York Mercantile Exchange. At the pump, gasoline prices are at a national average of $2.22 a gallon.
The dollar moved mostly higher against other major currencies Tuesday, while gold prices dipped.
Declining issues outnumbered advancers by nearly 5 to 1 on the New York Stock Exchange, where consolidated volume came to 4.93 billion shares, up from 4.45 billion shares Monday.
Overseas, Japan's Nikkei fell 3 percent and Hong Kong's Hang Seng fell 4.77 percent. In European trading, Britian's FTSE 100 lost 3.57 percent, Germany's DAX gave up 5.25 percent, and France's CAC-40 decreased 4.83 percent.
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