Stocks Tumble on the Downgrades of Greece and Portugal Debt

The Dow coughed up more than 200 points Tuesday as traders dumped stocks around the globe following a downgrade of both Greece and Portugal's sovereign debt ratings. The rating cuts sparked a knee-jerk flight to safety, punishing equities and lifting the dollar, Treasurys and gold.

A bad day for stocks stole the spotlight from a Senate grilling of key Goldman Sachs (GS) executives about the firm's role in the subprime mortgage disaster, as well as upbeat earnings and outlooks from Dow components DuPont (DD) and 3M (MMM). Ford (F) posted a $2.1 billion profit, and consumer confidence hit a level not seen since 2008.

But none of that was enough to keep jittery traders from selling first and sorting out the implications later. "Risk-aversion trades all of a sudden are back on the front burner," David Rosenberg, chief economist and strategist at Gluskin Sheff, told clients in a note. "The Greek saga continues unabated -- this time concerns over the timing and size of the aid package being discussed."

Standard & Poor's cut Greece's debt to junk status and lowered Portugal's debt two notches to A- from A+, adding to investors' anxiety that the Eurozone debt crisis could spread, analysts say. "Fear of peripheral contagion today is taking back equity gains earned in Europe yesterday," said John Stoltzfus, market strategist at Ticonderoga Securities, in a note to clients.

No Match for the News from Europe

The selling in Europe quickly spread to the U.S. equity markets. The blue-chip Dow Jones Industrial Average ($INDU) fell 213, or 1.9%, to settle at 10,992. The broader S&P 500 ($INX) dropped 28, or 3.3%, to 1,184. The tech-heavy Nasdaq Composite ($COMPX) shed 51, or 2%, to finish at 2,471.

More positive earnings news and economic data were no match for the selling pressure generated overseas. But in case you missed it, DuPont said its first-quarter profit doubled on a 23% gain in revenue, while 3M said its earnings jumped 80% on greater demand for electronics for autos and health care products.

Consumer confidence rose to 57.9 in April -- it's highest level since September 2008, the Conference Board said Tuesday, well ahead of estimates. Economists surveyed by Bloomberg News forecast the index to rise to 53.5 in April. It was 52.3 in March and 46.4 in February. It hit a record low of 25.3 in April 2009.

Mixed Picture for Housing

Stock investors also overlooked Tuesday's other major economic release, which was probably just as well, since it showed weakness in the housing sector. U.S. home prices in 20 cities dipped 0.1% in February on a seasonally adjusted basis, according to the S&P/Case-Shiller U.S. National Home Price survey.

That's slightly less than what economist surveyed by Bloomberg News had expected: a drop of 0.2% on a seasonally adjusted basis after rising 0.3% in January. On a year-over-year basis, the 20-city index rose 0.6%, and 10-city index rose 1.4% in February.

David Blitzer, chairman of the Index Committee at Standard & Poor's, said recent housing data are creating a question mark regarding the sector's recovery in 2010. But for equities today, the biggest question marks by far are hanging over Greece and now Portugal.