Stock Market Update - Tue Mar 13 16:20:01 UTC 2007

[BRIEFING.COM] Stocks tumbled Tuesday as an overly pessimistic market exaggerated everything from the implications of an unwinding in the yen carry trade to potential defaults by subprime lenders spilling over into an economy that again showed signs of slowing.

Before the bell, February retail sales rose just 0.1% (consensus 0.3%) while the more closely-watched sales, ex-autos, unexpectedly fell 0.1% (consensus 0.3%). Both figures pressured a market already extremely sensitive to signs of potential economic weakness even though unseasonably cold weather was a likely cause for the soft report. It is also worth noting that the data won't alter expectations of about 2% real GDP growth in Q1.

However, with subprime mortgage worries acting as an overhang for weeks now, more negative developments in the space took a weak stock market and made it even weaker provided a perfect excuse for sellers to take some money off the table following three straight days of gains for the Dow and S&P 500.

Accredited Home Lenders (LEND 3.97 -7.43) was the latest company in the subprime lineup to warn of such difficulties, saying it needs to raise new funds to cover the risk of default. The stock plunged nearly 70%. Adding insult to injury was Countrywide Financial (CFC 33.49 -1.65) CEO saying on CNBC that the subprime issue becoming "liquidity crisis."

But the straw that broke the backs of buyers today was a report midday from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years and overshadowed a blowout report from Goldman Sachs (GS 199.03 -3.57) that discounted the overall impact of something we believe isn't going to have a material impact on the economy.

Nonetheless, the damage was done as a 3.2% sell-off in the most influential of all S&P sectors -- Financials -- pulled the rug out of the market and left buyers sidelined into the close. The Dow, S&P 500 and Nasdaq plunged at least 2.0%, forcing the NYSE to institute downside trading curbs. Of the 147 S&P industry groups, 146 posted losses.

Further underscoring the widespread bearish tone were huge gains of 31% and 19% on the VIX (CBOE Volatility Index) and the VXN (CBOE Nasdaq Volatility Index), respectively. Both "investor fear gauges" closing at session highs, suggesting investors were actively buying put protection, heighten the anxiety that has been priced into stocks ever since the "Shanghai Surprise" roiled global equity markets two weeks ago today.

NYSE Adv/Dec 587/2753...Nasdaq Adv/Dec 553/2542