Stocks closed down sharply in the second-worst daily decline of the year as the woes in the subprime mortgage market continued to rattle the major markets, particularly financial stocks.
"I don't think this is over," said Patrick Fay, director of equity trading at DA Davidson, in an interview with CNBC.com.
Fay said he "absolutely" expects further selling later this week. "The market has been overdone for a while and it needs a correction."
"Investors are still very, very concerned obviously," Hugh Johnson, chief investment officer at Johnson Illington Advisors, told CNBC. "There are deep concerns about a possible credit crunch and the impact that would have on the economy; there are a lot of negative feelings out there today."
Carter Worth, chief technical strategist at Oppenheimer, told CNBC.com the rally off the market's lows in late February is likely over.
"The next move for equities is down," he said. "HSBC announced long before New Century Financial that the subprime industry was going to be weak. That was five weeks ago and (the market) has been down ever since."
Financial stocks, homebuilders and REITs were the targets of intense selling. The financial sector was the biggest loser among the the ten S&P 500 sectors, which were all trading in negative territory.
Brian Gendreau, investment strategist with ING Investment Management, told CNBC that a noon report showing a jump in delinquency rates for subprime mortgages spooked investors.
"A lot of these concerns may be overblown," said Gendreau. "The economy is fairly strong and the labor markets have been really strong."
"Six weeks ago nobody knew what subprime meant, now it's the buzz everybody's talking about," Randy Bateman, chief investment officer at Huntington Funds, told CNBC.com. "I don't necessarily think this will have a ripple effect outside the subprime area, but it is something that is causing the market concern."
But some investors remained upbeat despite Tuesday's market decline.
"We've got stability coming back into the global markets," said Arthur Hogan, managing director at Jefferies. "We're not waking up and seeing multiple percentage point gains or losses across the board in Asia, Europe or here. We're shifting our focus back to fundamentals and we're less concerned about momentum and psychology."
The New York Stock Exchange suspended trading of New Century Financial and said it would delist the stock. New Century appears to be on the brink of bankruptcy as the company said its lending activities are under investigation by the U.S. Securities and Exchange Commission and said it has received a subpoena for certain documents from the state of California.
Shares of mortgage bank Accredited Home Lenders plunged wider than 60% on liquidity concerns. The company said Tuesday $190 million in margin calls from its lenders has depleted cash reserves. Bear Stearns downgraded the stock on Tuesday to "peer perform" from "outperform" but said a sale of the company remains a possibility.
Goldman Sachs was a bright spot after it reported diluted earnings per common share of $6.67, beating expectations. Analysts surveyed by Thomson Financial were predicting profits would drop slightly to $4.90 a share from $5.08 a share in the year-ago period. Shares opened up but turned lower in afternoon trading, however, mirroring a drop in the overall markets.
Citigroup raised its offer for Nikko Cordial, Japan's third-biggest securities firm, by 26% to $13.4 billion on Tuesday. Citigroup announced it would pay 1,700 yen a share for Nikko, up from last week’s offer of 1,350 yen.
Qualcomm boosted its second-quarter earnings and sales guidance, citing stronger-than-expected worldwide demand for products based on its CDMA mobile phone technology. Qualcomm shares rose while shares or rival Texas Instruments fell after the company issued in-line earnings and sales guidance for the first quarter.
Billionaire investor Carl Icahn said his affiliated entities will initiate a tender offer for WCI Communities at $22 a share.
New York light crude futures closed down 1.7%, falling for the fourth straight session. Crude is down 5.1% year to date.
On Tuesday morning, the Commerce Department said retail sales in February rose 0.1%, less than expected. Economists surveyed by Dow Jones Newswires and CNBC expected a 0.3% increase in overall retail sales for February, compared with no change the month before.
The dollar fell against the yen while treasury prices rose following the retail sales data, sending yields lower.
European Shares Slip, Asian Markets Close Mostly Lower
London's FTSE-100, the Frankfurt DAX and the Paris CAC-40 all closed in the red.
In London, music and book group HMV issued a profit warning as it announced the outcome of a strategic review to better cope with tough competition from supermarkets and the Internet.
Tokyo's Nikkei 225 Average snapped a three-day winning streak to finish weaker in quiet trade as exporters such as Sony lost ground on continued concern about the outlook for the key U.S. market.
South Korea's Kospi Index ended down as Korea Exchange Bank fell on worries regulators would review its approval of the lender's sale to U.S. fund Lone Star, but power provider KEPCO gained after oil prices fell.
Hong Kong stocks were lower, pacing soft Asian markets, but property stocks outperformed ahead of a land auction later in the day. The Shanghai Composite Index bucked the trend and edged higher, adding to five straight days of gains, but many financials were soft and traders expect substantial profit-taking around the 3,000 level.