By Alexandra Twin, CNNMoney.com senior writer Last Updated: January 20, 2009: 6:11 PM ET
NEW YORK (CNNMoney.com) -- Stocks slumped to two-month lows Tuesday as investors looked beyond President Barack Obama's historic inauguration to the battered economy he inherits.
The Dow Jones industrial average (INDU) lost 4%, closing at the lowest point since Nov. 21. The Standard & Poor's 500 (SPX) index lost 5.3% and the Nasdaq composite (COMP) lost 5.8%.
Although Obama is a positive for the markets, his inauguration does not change the underlying issues, said Phil Orlando, chief equity market strategist at Federated Investors.
"Fourth-quarter earnings are a disaster," he said. "The numbers are poor, there are kitchen-sink writedowns and management is providing conservative or negative guidance."
Earnings are currently on track to have fallen 20.2% in the fourth quarter from a year earlier, according to the latest Thomson Reuters figures.
Orlando said stocks were also continuing to see some consolidation after the recent rally. Between the bear market lows on Nov. 20 and Jan. 6, the S&P 500 rallied 24%. Since then, it's dropped about 15%, as of Tuesday afternoon.
Bank stocks have been hit hardest, falling nearly 30% so far this year.
"The concern today is banks," said Fred Dickson, chief market strategist at D.A. Davidson. "People are looking at the Royal Bank of Scotland and wondering if the American banks are going to follow it."
On Monday, Royal Bank of Scotland (RBS) warned that it may report a loss of $41.3 billion - the biggest loss in British corporate history. The news rattled investors, even as Britain announced a second bank rescue plan. Royal Bank's U.S. shares plunged 69% Tuesday.
Wednesday's market: Dow component IBM (IBM, Fortune 500) was likely to be active Wednesday. The tech leader reported quarterly earnings late Tuesday that rose from a year ago and topped estimates, on revenue that fell from a year ago and missed estimates. IBM shares gained 3.5% in extended-hours trading.
Fellow Dow component United Technologies (UTX, Fortune 500) reports quarterly results Wednesday morning, while Apple (AAPL, Fortune 500) reports after the close Wednesday.
Also Wednesday, Treasury Secretary nominee Timothy Geithner's confirmation hearing in the Senate is set to start at around 10 a.m. ET.
Previously considered a shoo-in, Geithner has faced questions lately about his initial failure to pay certain taxes earlier this decade, as well as the immigration status of a housekeeper.
Financial shares tumble: In addition to the banking woes of British companies, a number of U.S. companies issued weak earnings and dour forecasts.
U.S. bank State Street (STT, Fortune 500) warned Tuesday that fourth-quarter earnings toppled 71% and said it could face billions of dollars in new credit losses. The company also warned that 2009 revenue and earnings will likely be flat with the previous year, missing forecasts for growth. State Street shares fell 59%.
TD Ameritrade (AMTD) said its first-quarter profit fell 23% and cut its outlook for the year. Shares fell 10.3%.
A variety of bank shares plunged. Bank of America (BAC, Fortune 500) lost 29%, Citigroup (C, Fortune 500) slipped 20% and JPMorgan Chase (JPM, Fortune 500) fell 20.7%.
Market breadth was negative. On the New York Stock Exchange, losers beat winners seven to one on volume of 1.72 billion shares. On the Nasdaq, decliners topped advancers by six to one on volume of 2.03 billion shares.
Obama: Barack Obama was sworn in just after noon ET as the 44th president of the United States. He'll face problems of the scope and intensity not seen by a president since Franklin Roosevelt in 1933. (Click to see six economic issues that Obama will address in the first 100 days.)
In his inaugural address, Obama said: "The state of the economy calls for action, bold and swift. And we will act, not only to create new jobs but to lay a new foundation for growth."
Optimism about what changes the new administration will bring could fuel some stock gains over the next few weeks. However, the underlying issues remained in focus.
Additionally, Obama's speech did not promise any short- or intermediate-term relief, said Robert Loest, portfolio manager at Integrity Funds.
"I think he reminded everyone that this is going to be harder to get through and it's going to take longer than has been anticipated," Loest said.
Stocks struggled higher Friday as investors mulled the federal bailout of Bank of America, which has struggled to absorb Merrill Lynch's credit losses after buying the hard-hit bank last year. Citigroup said it was splitting its businesses, and both banks announced massive quarterly losses.
All financial markets were closed Monday for Martin Luther King, Jr. Day.
Company news: Dow component Johnson & Johnson (JNJ, Fortune 500) reported higher quarterly earnings that beat forecasts on weaker revenue that missed forecasts. The company also forecast 2009 earnings that are short of forecasts. JNJ shares ended 1% lower.
New York Times (NYT) shares fell 8% after it agreed to take an expensive $250 million loan from Mexican billionaire Carlos Slim that it will use to repay debt.
Italy's Fiat said it was taking a 35% stake in U.S. car-maker Chrysler.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 2.37% from 2.20% Friday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates loosened. The 3-month Libor rate fell to 1.12% from 1.13% Monday, according to Bloomberg.com. Overnight Libor held steady at 0.12%. Libor is a bank-to-bank lending rate.
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