Stocks fall on Home Depot, Sears forecasts

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NEW YORK -- Stocks retreated Tuesday as Wall Street, nervously awaiting a speech from Federal Reserve Chairman Ben Bernanke, reacted to troubling forecasts from the retailers Home Depot and Sears.

Bernanke is expected to speak on inflation at 1 p.m. EDT in Cambridge, Mass., and any indication that the Fed chairman believes price pressures are rising could heighten worries about a possible interest rate hike and give the stock market a jolt.

Meanwhile, as the U.S. dollar tumbled to a new low against the euro and investors fled to the relative safety of Treasury bonds, the second-quarter earnings season got off to a rocky start. Early Tuesday, Home Depot Inc., Sears Holdings Corp. and homebuilder D.R. Horton Inc. offered disappointing financial outlooks that raised concerns about the housing market dampening consumer spending.

The outlooks -- which followed Monday's news that aluminum producer Alcoa Inc.'s second-quarter sales missed forecasts and that printer maker Lexmark International Inc. slashed its second-quarter earnings forecast -- 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.

"I don't think it's been a great day-and-a-half of earnings reporting," Stephen Carl, principal and head of equity trading at The Williams Capital Group. He added that the market could turn on what Bernanke has to say: "If there's any type of inflationary posture, that's going to exacerbate everything."

In midday trading, the Dow fell 30.16, or 0.22%, to 13,619.81, after dropping more than 80 points in earlier trading.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 6.73, or 0.44%, to 1,525.12, while the Nasdaq composite index was off 9.54, or 0.36%, at 2,660.48.

Bond prices soared, pushing down the 10-year Treasury note's yield to 5.08% from 5.16% late Monday. The decline 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. In recent weeks, falling yields have buoyed the stock market; high yields can slow down dealmaking and make stocks look like a less attractive investment.

The dollar dropped to a new low versus the euro Tuesday and a 26-year low against the British pound. The U.S. currency also slipped against the yen.

Home improvement retailer Home Depot said this year's earnings will slip more than expected due in part to the sluggish housing market, while Sears issued second-quarter guidance that fell below forecasts because of weak sales of appliances and other products.

The financial and retail sectors saw significant losses, after the dreary housing forecast elevated 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.

Investors found little relief in the Commerce Department's report that May wholesale inventories rose 0.5%, more than in April and slightly higher than expected.

Sears plunged $15.09, or 8.8%, to $156.32 after issuing its guidance, and DR Horton fell 52 cents, or 2.6%, to $19.27.

Home Depot rose 44 cents to $40.67, though, after saying it is launching a tender offer for 250 million shares of its common stock, and Alcoa rose 5 cents to $42.41 on takeover rumors.

Not all of Tuesday's guidance was disappointing: Pepsi Bottling Group Inc., one of the world's largest distributors of Pepsi drinks, raised its outlook for full-year earnings, and its stock rose $1.71, or 5%, to $36.14.

Dow component General Motors Co. and its rival Ford Motor Co. also gained after a JPMorgan analyst upgraded the shares of both automakers. GM rose 91 cents, or 2.5%, to $37.68, and Ford rose 16 cents to $9.24.

Crude oil futures climbed 54 cents to $72.73 a barrel on the New York Mercantile Exchange. Gold prices rose.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 603.2 million shares.

The Russell 2000 index of smaller companies fell 6.93, or 0.81%, to 846.31.

In Asian trading, Japan's Nikkei stock average fell 0.05%; Hong Kong's Hang Seng Index rose 0.3% to a sixth straight record close; and China's Shanghai Composite Index fell 0.8%.

In European trading, Britain's FTSE 100 was down 1.22%, Germany's DAX index was down 1.39%, and France's CAC-40 was down 1.40%.
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