NEW YORK | Wall Street got another dose of painful reality Tuesday and sent stocks diving as investors recognized that few industries are safe from the consumer spending slump - whether they are building homes, making cars or selling coffee. The Dow Jones Industrial Average lifted off its lows of the day, but still closed down nearly 177 points.
It became clear to investors that it’s going to be hard to rely on the average consumer to pull the economy out of its downturn. Late Monday, Starbucks Corp. reported lower sales across the coffee chain, and early Tuesday, Toll Brothers Inc. posted a sharp drop in revenue and said it was too difficult to predict what the luxury home builder’s profit would be next year.
Wall Street also was jittery as the nation’s feeble automakers await a bailout from the federal government similar to the one given to the ailing insurer American International Group Inc. General Motors Corp., whose shares have plunged to 60-year lows, said late Monday it would cut 1,900 factory jobs on top of the 3,600 cuts it announced Friday.
Stocks did recover from deeper losses after a media report that quoted a BlackRock executive saying that a $30 billion Bear Stearns mortgage portfolio could be worth more than its market value suggests. And, in another promising sign for mortgages, the government announced the largest moves yet to help homeowners renegotiate hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.
But the market ultimately ended lower, acknowledging that although the mortgage crisis that spawned the current economic deterioration is being addressed, the economy remains extremely troubled.
The market has been giving back gains recently - including a 248-point advance last Friday - as it tries to recover from October’s heavy selling. Stocks pared nearly all of their losses on the report that BlackRock President Robert Kapito said a Bear Stearns mortgage portfolio is generating cash flow, but then sank again.
It was the collapse of the subprime mortgage market more than a year ago and a resulting series of financial industry catastrophes that led to the economy’s current predicament.
The Dow shed 176.58, or 1.99 percent, to 8,693.96 after falling by more than 300. Tuesday’s close was the Dow’s lowest since its 5 1/2-year closing low on Oct. 27 of 8,175.77.
The blue-chip index has not dipped below the 8,000 mark in trading since Oct. 10, but is down nearly 35 percent since the start of the year.
Broader stock indicators declined as well. The Standard & Poor’s 500 Index fell 20.26, or 2.20 percent, to 898.95, and the Nasdaq Composite Index dropped 35.84, or 2.22 percent, to 1,580.90.
The Russell 2000 Index of smaller companies fell 10.81, or 2.19 percent, to 482.29.