Mortgage Rally Fades and Stocks End Lower

News at a Glance

• Back-to-Back Losses: Major indexes fall for second straight day.
• Energy Sapped: Oil eases back again, dips below $59.
• Hope for Housing: New gov't plan aims to curb foreclosures.
• What Stimulus?: Asian markets decline. Europe follows.

The Lowdown

Weak earnings reports and stormy forecasts battered the markets on Tuesday, and traders sent the major indexes to their second consecutive day in the red.

Stocks finished lower as gloomy corporate news indicative of a recession overshadowed a new housing program intended to curb rising foreclosures and delinquincies. The Dow Jones Industrial Average finished down 177 points at 8694. The Nasdaq slipped 36 to 1581, and the S&P 500 dropped 20 to 899.

The losses rocked every sector, but energy, capital goods and materials were hit particularly hard as anxiety of the slowdown weighed on prospective demand.

On the Nymex, oil futures dipped with the broader market. By 3:57 p.m., crude traded down $3.53 on the day at $58.88 a barrel.

On Monday, it was the financial sector that wreaked the most havoc with U.S. stocks, and the cloud over banks stretched into Tuesday's session. Goldman Sachs (GS) took a dip on word of a staff reduction in Japan. Morgan Stanley (MS) also lost ground.

Merrill Lynch (MER) Chief Executive John Thain did not lighten the mood when he compared the onset of the current economic crisis to 1929 and the run-up to the Great Depression. "Although things are starting to improve, this is going to be a long process, and this is not going to get better quickly," he said, according to Reuters. "It is not like '87, it is not like '98, it is not like 2001."

The market also sagged on concern over corporate guidance and results, particularly in retail and among other firms that rely on consumer spending. TJX (TJX), the parent company of T.J. Maxx and Marshalls stores, said its third-quarter net income dropped 5% as consumers cut back on discretionary spending.

Even Starbucks (SBUX) appeared vulnerable during the downturn. The coffee chain said its fourth-quarter net income fell 97% below that of the year-ago period. Starbucks also said it expected earnings to shrink in fiscal 2009 and that the company would scale back its store openings by about 29% to 700.

In Washington, the housing sector got some good news, giving the markets temporary bounce in afternoon trading. The Federal Housing Finance Agency, which took over Fannie Mae (FNM) and Freddie Mac (FRE) earlier this year, announced a sweeping plan to help struggling mortgage holders refinance their loans.

"Foreclosures hurt families, their neighbors, whole communities and the overall housing market," said James Lockhart, the director of the agency. "We need to stop this downward spiral."

Separately, Citigroup (C) said it would hold back on foreclosing on properties that were the primary residences of their owners if they worked with the bank in good faith and made enough money to establish a regular payment schedule.

The housing sector's problem's were brought to the fore early Tuesday when Toll Brothers (TOL) reported a 41% decline in fourth-quarter revenues.

Asian markets slipped as traders began to question whether China's new $586 billion stimulus package would be enough to insulate the country from the global slowdown. In Japan, the Nikkei fell 3.0%, while Hong Kong's blue-chip Hang Seng lost 4.8%. In Europe, the major indexes of Paris, Frankfurt and London each finished down more than 2.5%.

Corporate News

• American Express (AXP) has been approved by the Federal Reserve to change its status to a bank holding company, the firm said. The switch puts the credit card firm under the auspices of the Fed, giving it access to the full range of the government's lending programs just as it faces mounting delinquincies.
• Goldman Sachs (GS) has trimmed its Tokyo workforce by about 10%, Reuters reported, citing anonymous sources. The cuts are said to include Naomi Matsuoka, one of Japan's most high-ranking women in banking. She presided over the firm's equity capital markets team.
• Vodafone (VOD) lowered its sales forecast for 2008 and plans to cut costs by $1.6 billion, the firm said. "Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow," Chief Executive Vittorio Colao said in a statement.

The Economy

• There are no significant economic reports scheduled to be released today.

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