Bear Claws

How bad was it?

It was in the top five worst performances for the combined indices this year, and likely the third worst showing (at least for the Dow it was). What triggered the Tuesday tempest was poor showings by a multitude of companies reporting second quarter earnings, most notably, McDonald's (MCD) huge miss and a miss by DuPont (DD) prior to the market open and Texas Instrument's (TI) poor showing announced Monday after the close.

Dow 13,716.95 -226.47; NASDAQ 2,639.86 -50.72; S&P 500 1,511.04 -30.53; NYSE Composite 9,909.95 -211.63

Here are just some of the early headlines, which seemed to get worse as the trading session wore on.

IN PLAY: Corn Products reports 2Q07 results; beats by $0.09
DuPont reports flat 2Q earnings
Kimberly-Clark 2Q Profit Beats Outlook
Legg Mason profit climbs 22 percent
Lexmark net profit slips 16 percent
Northrop 2Q profit rises 7%
PepsiCo 2Q Profit Rises 13 Percent

While there were a smattering of positives, they were overwhelmed by more than just a few companies not meeting 2nd quarter estimates.

Declining issues crushed advancers by a 5-1 margin and new lows swamped new highs, 642-162.

Not even bonds, tame, with the 10-year note yielding 4.92%, or oil, down $1.33 to $73.56, could pick up the spirits on Wall Street. The continual unwinding of the sub-prime mortgage blow-up (now spreading into other credit areas) combined with the spate of earnings disappointments led to an all-out rush for the exits.

For those with weak stomachs, stop here, because I'm going to tell you why it's going to get worse the rest of the week.

First, more companies will be releasing earnings reports and some are certain to miss estimates. Investors are in a sour mood already, and they simply don't need any more reasons to sell. Later in the day, US Steel (X) reported a 25% dip in profits from the year ago period. Net income fell to $302 million, or $2.54 per diluted share, for the quarter, from $404 million, or $3.22 per share, during the same period last year. Analysts were looking for earnings of $2.35 per share on $4.05 billion in sales and the stock ended the day up 42 cents at 106.41.

After the close, Amazon (AMZN) booked solid profits. Earnings climbed to $78 million, or 19 cents per share, from $22 million, or 5 cents per share during the same period last year, soundly beating expectations of 16 cents per share.

Eli Lily (LLY) also reported after the close. Excluding charges, adjusted earnings totaled $978.7 million, or 90 cents per share. Analysts had expected 82 cents per share on that basis.

Tomorrow, in addition to the more than 300 companies reporting 2nd quarter earnings, the following report prior to the open:
Colgate-Palmolive (CL), ConocoPhillips (COP), DaimlerChrysler (DCX), Freeport-McMoRan Copper & Gold (FCX), GlaxoSmithKline (GSK), Xerox (XRX)

After the close:
Apple (AAPL), Pulte Homes (PHM), Symantec (SYMC), Boeing (BA).

Additionally, Existing Home Sales for June will be out at 10:00 am. On Thursday, New Home Sales figures for June and on Friday, the preliminary 2nd quarter GDP estimate.

With those economic reports on the way, traders may have taken an early hiatus, expecting the worse. It's likely to not be as bad as the worst skeptics suspect, but don't look for a quick turnaround - at least not this week.