U.S. stocks closed sharply lower Tuesday in yet another volatile session, as ongoing economic uncertainties and a mixed bag of earnings reports led investors to take profits on gains from the previous session's rally. Also weighing on the market was a drop in energy and mining stocks, which sank along with commodities futures -- including oil and gold -- amid worries about demand.
On the earnings front, gainers included 3M Corp. (MMM), American Express (AXP), Quest Diagnostics (DGX) and JDA Software (JDAS); losers included DuPont (DD), Texas Instruments (TXN), Sun Microsystems (JAVA), and Manpower (MAN).
There were also lingering concerns about Lehman Brothers' and WaMu credit default swap (CDS) settlements.
S&P MarketScope notes that many advisers say equity prices are unusually attractive and many hedge funds, believing the market is at a bottom, are becoming fully invested in stocks. But other observers remain bearish.
Many market players say the market has discounted a recession, notes S&P MarketScope. But some economists say this recession will be steeper and longer than many anticipated, as the U.S. financial crisis -- and economic slowdown -- have become global.
Bond prices surged amid the weakness in equities. The U.S. dollar index also spiked. Gold futures were lower, while oil futures fell.
On Tuesday, the Dow Jones industrial average finished lower by 231.77 points, or 2.5%, at 9,033.66. The S&P 500 index fell 30.35 points, or 3.08%, to 955.05. The tech-heavy Nasdaq composite index tumbled 73.35 points, or to 1,696.68.
On the New York Stock Exchange, 22 stocks fell in price for every nine that gained. The ratio on the Nasdaq was 20-7 negative.
Lehman Brothers' credit default swaps worth hundreds of billions of dollars came due Tuesday. According to the Depository Trust & Clearing Corporation, the liquidation process for forward open commitments involving Lehman's CDS settlements has been completed. The FICC announced that "no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades."
"So it looks as though there was no major fallout from the settlement to member firms," wrote Action Economics analysts in a website posting Tuesday. "We'll have to wait to see if there was a broader market impact, however."
The New York Times reported Monday that New York State and federal prosecutors are investigating trading in credit-default swaps, the insurance like securities that have come under close scrutiny for their role in the financial crisis.
Kirk Kerkorian's Tracinda Corp on Monday sold 7.3 million Ford Motor Co. (F) shares at an average $2.43 price, and intends to further reduce its remaining 135.5 million shares (6.09% of the total outstanding).
Fedspeak is due from Minneapolis Fed President Gary Stern on "Policy and the Economy in the Wake of the Shock" but the dinner speech will be well after the market close and won't be a factor this session, says Action Economics.
Treasury Secretary Henry Paulson will discuss "China and the Global Economy" before a U.S.-China Annual Gala in New York City Tuesday evening.