Stocks tumble as firms scale down forecasts

Stocks tumbled Tuesday after a two-day rally as disturbing corporate news reminded investors of the magnitude of the economy’s troubles.

Among the downbeat reports, delivery giant FedEx, often cited as a barometer of the U.S. economy, cut its profit for its fiscal year, which ends in May. Danaher, which manufactures bar-code readers and Sears Craftsman tools, reduced its fourth-quarter profit forecast and announced plans to cut 1,700 jobs.

Shares of FedEx tumbled $10.78, or 14%, to $63.65. Danaher slid $2.18, or 4.2%, to $49.78.

“The markets are just expressing a tremendous amount of ambivalence about the future,” said Marian Kessler, co-portfolio manager of the Becker Value Equity Fund in Portland, Ore.

“The market is grappling with what is certainly going to be a fairly deep recession in 2009.”

The Dow Jones industrial average fell 242.85 points, or 2.7%, to 8,691.33 after logging a two-day gain of nearly 560 points Friday and Monday.

Broader stock indicators also declined.

The Standard & Poor’s 500 index fell 21.03 points, or 2.3%, to 888.67. The Nasdaq composite index fell 24.40 points, or 1.6%, to 1,547.34.

The Russell 2,000 index of smaller companies fell 15.67 points, or 3.3%, to 465.71.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange.

Despite the retreat, there is budding optimism on Wall Street simply because of the more orderly trading that has emerged since mid-November.

The market’s run since last month has led to some hopes that stocks might be carving out a sustainable recovery. Even after Tuesday’s declines, the Dow is up 15% since it and the other major indexes reached multiyear trading lows Nov. 20. The S&P; 500 index and the Nasdaq are up 18%.

Oil prices fell despite expectations that the Organization of the Petroleum Exporting Countries would announce a big production cut next week to curb crude’s stunning 70% plunge over the last five months. Oil futures fell $1.64 to settle at $42.07 a barrel on the New York Mercantile Exchange.

Shares of General Motors fell 23 cents to $4.70, as investors waited for lawmakers to finish negotiating a $15-billion bailout for the carmaker and privately held Chrysler. A deal, which might occur as early as Wednesday, reportedly would give the government an ownership stake in the automakers.

Shares of Ford Motor fell 15 cents to $3.23.

In a sign that investors were willing to place some bets on an eventual economic recovery, shares of some microchip manufacturers rose despite a disappointing forecast from Texas Instruments.

Texas Instruments rose 73 cents, or 4.9%, to $15.55, and Intel climbed 36 cents, or 2.6%, to $14.30.

In overseas markets, key indexes rose 0.8% in Japan, 1.9% in Britain, 1.3% in Germany and 1.5% in France. Hong Kong shares fell 1.9% after a huge surge Monday.