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Stocks continued to slide Tuesday as bank stocks dragged on the broader market following a weak prognosis from a well-known banking analyst.
The Dow Jones Industrial Average lost 96.50, or 1 percent, to close at 9,241.45. The Nasdaq fell 1.1 percent, while the S&P 500 dropped 1.3 percent.
This came after stocks shed 0.3 percent on Monday amid profit-taking after a four-week rally that sent the Dow up 15 percent. Investors are taking a wait-and-see approach this week, which brings the Fed meeting, a $75 billion round of Treasury auctions and reports on retail sales, retail earnings and consumer prices.
The Treasury kicked off this latest round of auctions with a $37 billion offering of 3-year notes today that was met with strong demand. Still to come: $23 billion in 10-year notes Wednesday and $15 billion in 30-year bonds Thursday.
In the day's economic news, productivity rose 6.4 percent in the second quarter, the best reading in six years, but small business confidence slipped last month.
"We're still not sure that things are going to get better," said William Dunkelberg, the chief economist at the National Federation of Independent Business, which issued the report.
The NFIB said its small business confidence index fell in July for the second straight month, dropping 1.3 points to 86.5. Dunkelberg said the number is consistent with negative growth in gross domestic product, depsite the predictions of many economists who see GDP turning positive this year.
The Fed started its two-day meeting today and will deliver its statement tomorrow afternoon. Investors will be watching the statement closely for signs of an exit strategy for the extraordinary measures implemented to deal with the financial crisis.
The one thing the market could really use from the Fed in this statement: hope.
Financial stocks, which have gained 25 percent in the past month, skidded after Rochdale Securities analyst Dick Bove recommended taking short-term profits in the sector, saying bank stocks were running on "fumes" and not reality in their recent run-up. He said bank earnings won't improve in the third or even the fourth quarter. Still, he says the sector is attractive long-term.
Citigroup [C
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] and Wells Fargo both dropped more than 6 percent.
AIG shares [AIG
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] fell another 13 percent and Bank of America [BAC
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] lost 5 percent following a story in the Wall Street Journal today about the SEC's plan to ramp up its enforcement actions to convey a "sense of urgency."
Piling on to the pressure on the banking sector, Miller Tabak cut its price targets on Zions Bancorp [ZION
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] and Regions Financial [RF
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]. Those stocks shed 8.4 percent and 4.2 percent, respectively.
CIT Group shares [CIT
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] tumbled 19 percent after the company said it would file for bankruptcy protection if it failed to complete its debt tender or arrange other financing.
Shares of Freddie Mac [FRE
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], the battered government-sponsored mortgage agency, skidded 7.7 percent a day after the company reported its first quarterly profit in two years. Shares of its sister agency, Fannie Mae [FNM
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], jumped 7 percent.
The market was also buzzing about an op-ed in the Wall Street Journal today about Ginnie Mae, the Government National Mortgage Association, and the fact that much of its lending is essentially subprime.
Target shares [TGT
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] rose 0.5 percent after activist hedge-fund manager William Ackman converted most of his options in the retailer into common stock to become more of a long-term investor.
Several other retail stocks also rose, including Wal-Mart, Macy's and Gap.
More moving-and-shaking news out of the auto sector: General Motors executives said the all-electric Chevrolet Volt — expected to hit showrooms late in 2010 — will get 230 miles per gallon.
Applied Materials [AMAT
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] shares fell 1.9 percent ahead of its earnings after the closing bell. The chip-equipment maker reported its loss narrowed and beat expectations, helped by cost cuts and a jump in new orders.
Volume was light, with 1.17 billion shares changing hands on the New York Stock Exchange. Decliners outpaced advancers, nearly 3 to 1.
This Week:
TUESDAY: Two-day Fed meeting begins; Earnings from Applied Materials after the bell
WEDNESDAY: Weekly mortgage applications; international trade; weekly crude inventories; Treasury 10-year auction; Fed announcement; Earnings from Macy's
THURSDAY: Retail sales; weekly jobless claims; import/export prices; business inventories; Treasury 30-year auction; Earnings from Wal-Mart, Kohl's and Nordstrom
FRIDAY: CPI; industrial production; consumer sentiment; Earnings from JCPenney
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