Disappointment in Home Depot (HD), the nation's No. 1 home improvement retailer, sent stocks to an ugly close Tuesday.
With virtually all of the tech giants on the Dow Jones industrial average lower, the index stumbled 123.79 points, or 1.21%, to 10,105.71. Meanwhile, the Nasdaq Composite fell 37.40 points, or 2.20%, to 1,664.19. And the broader Standard & Poor's 500 index fell 12.00 points, or 1.10%, to 1,079.88.
Reflecting continued nervousness over the state of corporate profits, investors retreated in spite of the surge in second-quarter earnings for Home Depot. Though the retailer said quarterly earnings rose 35%, the stock dragged the Dow index to triple digit losses. Wall Street turned on Home Depot because it did not offer improved guidance as its No. 2 competitor Lowe's (LOW) did earlier in the week.
Early in the day, optimism about the $100 million settlement between Merrill Lynch (MER), which was under investigation over improprieties in its stock research, and the New York's attorney general's office buoyed the major indexes. Though the positive news for the No. 1 brokerage gave a hand to some beaten-down financial stocks like JP Morgan Chase (JPM), the news did little for the rest of the market.
Investors were also weighing the latest comments about potential terrorist attacks on New York City landmarks. On Sunday, Vice President Dick Cheney Sunday said a new attack on the nation was "almost certain." U.S. intelligence agencies have picked up signals, though vague, that the terrorist organization al Qaeda may soon strike.
Among other companies in the news Tuesday, Chartered Semiconductor (CSMF) stepped up its guidance. The world's third-largest contract chipmaker raised second-quarter earnings expectations on stronger orders in the communications and computer markets.
Qualcomm (QCOM) ticked higher after it reaffirmed guidance for the current year and quarter, predicting strong acceptance of the latest wireless telecommunications systems that feature high-speed access and color displays.
But market jitters about profit prospects for the tech sector continued unabated, especially after Salomon Smith Barney cut its estimates for Siebel (QCOM) and eight other application software companies.
Other big-name retail stocks also garnered attention. Target Corp. (TGT) reported quarterly income that rose 36%, meeting Wall Street projections. But investors sold the stock, disheartened that the discounter did not raise earnings guidance.
Meanwhile, office products retailer Staples (SPLS) saw its stock jump after it said first-quarter profit more than doubled after it slashed costs, launched open-access stores and boosted revenues from high-margin items like photo printing paper and inks.
U.S. Treasuries finished mostly higher in price amid a weak equities market. The Federal Reserve also bought coupons to add permanent reserves to the system. It is targeting maturities from Aug. 31, 2003 through Feb. 29, 2004, says Standard & Poor's MMS.
There is little on Tuesday's economic calendar. Two retail sales reports were released. Instinet Redbook said same-store sales fell 0.3% for the first three weeks of May versus the April average, while sales are up 1.9% compared with May 2001. UBS Warburg said chain-store sales were flat for the week ended May 18 versus the prior week. Foul weather conditions played a roll during the week, improved over Memorial Day weekend is expected, MMS says.
The Treasury will auction $18 billion in four-week bills on Tuesday. Corporate supply is likely to remain in the picture. Meanwhile, two Federal Reserve officials, Vice Chairman Ferguson and Governor Olson, are due to speak Tuesday.
No economic data are due Wednesday.
European markets finished lower as U.S. stocks weakened. London's FTSE 100 fell 10.90 points, or 0.21%, to 5,197.20. France's CAC 40 index ended down 1.55 points, or 0.04%, to 4,399.20. Germany's DAX index lost 14.38 points, or 0.29%, to 4,984.61.
Asian stocks ended lower, led by weakness in computer-related concerns following Monday's weak showing in the U.S. stock market. Japan's benchmark Nikkei 225 index lost 55.38 points, or 0.47%, to 11,801.16. Hong Kong's Hang Seng dropped 221.32 points, or 1.85%, to 11,753.29.