Democratic Underground - all over except the crying

Dow 13,501.70 down 148.27 (1.09%)
Nasdaq 2,639.16 down 30.86 (1.16%)
S&P 500 1,510.12 down 21.73 (1.42%)
10-Yr Bond 5.038% up 0.121

NYSE Volume 3,244,402,000
Nasdaq Volume 2,247,252,000

4:20 pm : Stocks snapped a five-day winning streak Tuesday as everything from heightened subprime concerns to profit warnings further underscoring signs of housing weakness ushered in a wave of widespread profit taking.

As if Dow component Alcoa (AA 41.66 -0.70) officially kicking off the Q2 earnings season last night with a lackluster earnings report wasn't bad enough, renewed fears surrounding possible spillover of the subprime fallout took an added toll on sentiment, especially throughout an influential Financial sector (-2.2%) that currently remains the only thorn in the broader market's side. It is now down 3.1% on the year and the absence of its leadership limits the upside potential of the S&P 500.

Right out of the gate investors were greeted with reports that Standard & Poor's may cut ratings on $12 bln in subprime mortgage bonds. S&P said, "The levels of loss continue to exceed historical precedents and our initial expectations," and does not foresee the poor performance abating. An increasing number of delinquencies in the subprime mortgage market raising concerns about credit quality issues for all lenders played into our downgrade of the Financial sector back in April.

Of the other nine sectors closing sharply lower, Consumer Discretionary (-1.9%) was another sore spot. Home Depot (HD 40.25 +0.02) provided disappointing profit guidance for the second time this year, citing weak housing market conditions. The company also commencing a tender offer to acquire 250 mln shares, however, served as enough of a mitigating factor to leave it as one of only five Dow components posting gains.

Nonetheless, DR Horton (DHI 19.40 -0.39) also lowering quarterly expectations, due to a 40% drop in orders for new homes, offered further proof that a housing recovery in 2007 is unlikely and why we also have an Underweight rating on the discretionary sector. The Department Stores (-3.9%) group was the sector's biggest disappointment and today's worst performer among the 143 (out of 147) S&P industry groups losing ground. Sears Holdings (SHLD 154.21 -17.20) warned that Q2 earnings will miss forecasts due largely to lower sales of home appliances.

Hopes that Bernanke might say something to calm the market's nerves were also dashed. The Fed Chairman steering clear of discussing the outlook for economy or interest rates, and not detailing the current inflation picture, left investors wanting more and valuations even more vulnerable. The S&P 500 and Nasdaq were coming off five straight days of gains and surged 1.8% and 2.4%, respectively, last week alone. After Bernanke provided no real evidence to the direction the Fed is headed, though, sellers were off to the races and never looked back.

The S&P 500 failing to find support above its 50-day moving average triggering a sell program late in the day exacerbated the market's broad-based downturn. BTK -0.9% DJ30 -148.27 DJTA -1.5% DJUA -1.2% DOT -1.6% NASDAQ -30.86 NQ100 -0.9% R2K -1.8% SOX -0.8% SP400 -1.5% SP500 -21.73 XOI -0.5% NASDAQ Dec/Adv/Vol 2236/808/2.15 bln NYSE Dec/Adv/Vol 2540/755/1.50 bln

3:30 pm : The indices continue to languish near session lows as buyers remain a reluctant bunch. There are, however, a handful of areas of catching a bid. Of the six (out of 147) S&P industry groups trading higher, Office Electronics (+3.8%) is pacing the way as Xerox (XRX 19.81 +0.73) rallies to multi-year highs.

The Refiners group is up 1.4% as some unexpected refinery shutdowns close gas futures up 1.0% on the day. Automobile Manufacturers (+1.2%) are turning in the next best performance following analyst upgrades on General Motors (GM 37.52 +0.75) and Ford Motor Co (F 9.11 +0.03). DJ30 -118.19 NASDAQ -29.00 SP500 -18.36 NASDAQ Dec/Adv/Vol 2197/840/1.79 bln NYSE Dec/Adv/Vol 2473/787/1.22 bln

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