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 hope for 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.
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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.
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.
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 51/2-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.