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Stocks fall on disappointing forecasts
Home Depot, Sears earnings reports trouble investors

By Madlen Read
AP Business Writer

NEW YORK — Stocks plunged Tuesday as investors, nervous about upcoming earnings reports, cringed at troubling forecasts from retailers Home Depot and Sears. The Dow Jones industrial average fell 148 points.

The market seemed to be following the pattern of previous earnings seasons, turning lower as second-quarter reports had a rocky start. Home Depot Inc. and Sears Holdings Corp. offered dreary outlooks that suggested the sluggish housing market may dampen consumer spending.

The outlooks followed Monday’s news that aluminum producer Alcoa Inc.’s second-quarter sales missed estimates and that printer manufacturer Lexmark International Inc. slashed its second-quarter earnings forecast. Together, the reports dispirited investors who had been counting on corporate America’s performance giving a boost to the stock market, which has been stuttering in recent weeks.

‘Little bit skittish’

“People are a little bit skittish about the health of the consumer,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

Wall Street — which often trades erratically amid profit warnings before the quarterly earnings flood — also weakened due to ratings agency Standard & Poor’s, which said it may lower the credit rating of more than $12 billion in bonds backed by risky home loans. Such loans are sold by some of the nation’s largest banks.

The Dow fell 148.27, or 1.09 percent, to 13,501.70, near its low of the session.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 21.73, or 1.42 percent, to 1,510.12, while the Nasdaq composite index was off 30.86, or 1.16 percent, at 2,639.16.

Treasury yield drops

Bond prices soared, pushing down the 10-year Treasury note’s yield to 5.03 percent from 5.16 percent late Monday. The plunge in yields failed to boost stocks, largely because the decrease was caused by worries about the housing market rather than confidence that inflation is easing.

A speech by Federal Reserve Chairman Ben Bernanke in Cambridge, Mass., did not offer much insight into the central bank’s next move, and instead focused on how the Fed makes its inflation-fighting decisions. Investors are curious whether the bank will raise interest rates later this year to rein in inflation, given soaring food and energy prices.

The financial and retail sectors saw significant losses on jitters about subprime lending and consumer spending. JPMorgan Chase & Co., American Express Co. and Wal-Mart Stores Inc. were the big losers among the 30 Dow companies.

Sears plunged $17.10, or 10 percent, to $154.31 after issuing its guidance, and D.R. Horton fell 38 cents, or 2 percent, to $19.41.

Home Depot rose 8 cents to $40.31, though, after saying it is launching a tender offer for 250 million shares of its common stock.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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