That globe-trotting Mr. Credit Crunch is at it again. After dashing from his home base in the U.S. to make surprise stops in places like France and Australia, the shadowy figure has been spotted in Canada. And his latest appearance sparked a big sell-off in U.S. equity indexes Tuesday.
Negative earnings outlooks from Wal-Mart (WMT) and Home Depot (HD) -- widely regarded as bellwethers for U.S. consumer spending -- also added to Wall Street's gloom.
On Tuesday, the Dow Jones industrial average tumbled 207.61 points, or 1.57%, to 13,028.92. The broader S&P 500 fell 26.38 points, or 1.82%, to 1,426.54. The tech-heavy Nasdaq composite index shed 43.12 points, or 1.7%, to 2,499.12.
The VIX index, a measure of volatility widely regarded as a stock-market fear gauge, was higher on Tuesday, up 5.2% to 27.96. The VIX has remained near its 52-week high amid the recent gyrations in equity markets.
The rising VIX is a bearish sign, notes S&P technical analyst Chris Burba, because price
tends to fall faster than it rises, so increased volatility generally accompanies a declining market.
Investors Tuesday looked anxiously at developments in The Great White North. Canadian ratings agency Dominion Bond Rating Services said 17 issuers have requested funding from their liquidity providers, reports S&P MarketScope. This followed a report that Canadian investment firm Coventree (COF.TO) has been unable to place asset-backed paper on Tuesday. Coventree shares tumbled 64% on top of a 34% slide Monday.
The Bank of Canada declined to comment on asset-backed commercial paper problems hitting the credit markets, according to Reuters.
The Canadian stock market benchmark, the S&P/TSX composite index, fell 1.4% Tuesday.
Meanwhile, U.S. investors had their own worries. Sentinel Management Group, a small Illinois firm that manages short-term cash for commodity trading firms and hedge funds, stopped allowing its clients to withdraw funds. The company asked the Commodity Futures Trading Commission for permission to halt redemptions, but the regulator said does not have the authority to grant the request.
In an Aug. 13 letter to regulators, Sentinel said it was worried it would not be able to meet any significant redemption requests. "We do not see an alternative and we don't believe it is anyone's best interest if a run on Sentinel took place and we were in a forced liquidation mode," Sentinel's management said.
Lehman Brothers analysts said Tuesday that the "market has become concerned about a more significant liquidity drain".
Traders are still waiting for the next subprime loan problem to emerge, watching as the European Central Bank injected more funds into the banking system while Asian banks held back and the Federal Reserve considers its next move, said Standard & Poor's.
Retailers were in the spotlight Tuesday. Wal-Mart posted a 49% leap in profits for the second quarter to 76 cents a share from 50 cents a share a year ago on $93.01 billion in revenue. But world's largest retailer trimmed its outlook for earnings from continuing operations for the full year to between $3.05 and $3.13 a share from its earlier forecast range of $3.15-$3.23 per share amid signs U.S. consumers are tightening their purse strings. The stock slid 5.1%, helping send the S&P hypermarket & supermarket industry index lower by 4.8%.
Home Depot reported earnings from continuing operations of 77 cents a share for the second quarter, down from 82 cents a share a year ago on a 5.2% drop in same-store sales and 1.8% lower total sales. The company reaffirmed its fiscal 2008 forecast for earnings from continuing operations to fall by 12% to 15%. The shares slid 4.9% Tuesday.
Shares of mortgage outfits were under pressure Tuesday, with the S&P industry index down 2.4%. Countrywide Financial ( 2 Next Page