Stocks Take a Tumble

Updated from 4:05 p.m. EDT

Stocks ended lower Tuesday, despite reassuring comments from Federal Reserve Chairman Alan Greenspan that interest rates would remain low for as long as necessary.

The Dow Jones Industrial Average ended down 48 points, or 0.5%, at 9128, while the Nasdaq fell 1 point, or 0.1%, to 1753. The S&P 500 shed 3 points, or 0.3%, to 1000.

"We're priced for perfection," said Peter Blatchford, a trader at Miller Tabak. "[Greenspan] said some positive things, but we've run up a long way." Blatchford added that while earnings have been respectable so far, companies are only meeting lowered estimates. "[Second-quarter] earnings are going to be fine because we didn't have many warnings, but guidance on the second half of the year is going to be key," he said.

Testifying before Congress on Tuesday, Greenspan said economic activity should improve over the coming quarters, and he noted that the central bank would keep interest rates low for as long as necessary. Treasuries were down sharply on the news, with the yield on the 10-year note rising to 3.93%. Faster economic growth tends to spur inflation, which erodes the value of bonds.

"The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance," Greenspan said. "With the target funds rate at 1%, substantial further conventional easings could be implemented if the FOMC judged such policy actions warranted."

Greenspan said that the "prospects for a resumption of strong economic growth have been enhanced by" balance sheet restructuring in the private sector. While households have taken on more debt in the past two years, debt service levels have gone down and house prices have appreciated sharply, he said. Businesses have also taken steps to shore up their balance sheets and have seen their cost of capital decline.

The decline in bond yields, improvement in stock prices, recent tax cuts and low interest rates should also help to "bolster" the economy going forward, he said. Still, he noted that a pickup in oil and natural gas prices, weakness overseas and continued reluctance from businesses to spend are cause for concern.

In corporate news, Intel(INTC) was higher ahead of its earnings announcement due after the bell. Shares ended up 8 cents, or 0.3%, at $24.10. The chipmaker beat expectations, and after hours, shares vaulted 84 cents or 3.5% to $24.94.

Shares of Altria(MO) weighed on the Dow, however, after an appellate court decided late Monday that a judge didn't have the power to cut a bond Altria's Philip Morris unit was supposed to pay in appealing a $10.1 billion verdict. The company now could be forced to shell out billions of dollars. Altria fell $1.46, or 3.5%, to $40.50.

Boeing(BA) also fell after saying it would record a charge of $1.1 billion in the second quarter due to weakness in the commercial space-launch market and higher mission and launch costs. Fellow Dow component Johnson & Johnson(JNJ) inched down after reporting an almost 27% drop in second-quarter profit.