Updated from 4:07 p.m. EDT
Tech stocks put their two-day rally on hold and blue-chips stumbled on weakness in a few
components Wednesday, as traders took profits ahead of quarterly earnings.
The Dow Jones Industrial Average finished down 68 points, or 0.7%, to 9155. The
gained less than a point to 1747, while the
fell 6 points, or 0.6%, to 1002.
The main drivers of the Dow's decline were
, which shed $2.87, or 6%, to $43.90 on legal concerns, and
which fell $1.11, or 3.2%, to $33.44 after reiterating weak guidance. Together, their losses accounted for about half the Dow's decline.
also contributed to the losses, falling 39 cents, or 1.5%, to $25.42.
On the NYSE, almost 1.6 billion shares changed hands, with losers outpacing winners by 18 to 14. Some 2.1 billion shares changed hands on the Nasdaq, with advancers ahead of decliners by a 18-to-13 ratio.
The selling came in on the heels of two sessions in which the Dow rose almost 2% and the
Some market watchers said investors were nervous ahead of key reports next week, when over 250 companies release second-quarter results, including
"Hope is outdoing experience," said Jim Melcher, president and market strategist at Balestra Capital. "Investors seem to think markets have to rally after long periods of declines, but that is not necessarily true. It's not clear where the market will go."
Melcher expects "a lot of disappointment" in the second-quarter numbers and thinks that if results don't justify the recent rises in the market, "it may have adverse repercussions."
Others bet the setback will be brief. "The market is just giving up gains from the last couple of days, but there's still a positive tone in the long term," said Giri Cherukuri, senior trader at OakBrook Investments. "As the market upturn has been more prolonged, more and more people are being convinced it will go forward."
Altria tumbled after Morgan Stanley in a research note raised concerns about the company's legal exposure. Specifically, Morgan said an appeals court is likely to find that an Illinois trial judge lacked the authority to change the terms of a bond Altria was required to put up while it appealed a verdict against it over light-cigarette marketing.
Home Depot slipped after its chief financial officer reiterated expectations for earnings to rise 9% to 14% in the fiscal year ending January. The estimate reflects expected continuing weakness in same-store sales during 2003's second half, something investors apparently hoped could be avoided.
Alcoa reported a drop in second-quarter earnings, but it beat Wall Street estimates. Morgan Stanley downgraded the stock to equal weight from overweight.
Swimming against the tide,
was raised to hold from sell at Prudential. Citi shares were up 64 cents, or 1.4%, to $46.01.
reversed earlier gains after saying it will replace employee options grants with restricted stock. Shares of the company lost 23 cents, or 0.8%, to $27.47.
Profits are expected to grow 5.3% on average in the second quarter for the companies in the S&P 500, down from estimates of a 7% rise on April 1, according to Thomson First Call. That number compares with an 11.6% rise in first-quarter results.
In terms of companies' predictions, for every one that has raised estimates, 2.1 have made a negative preannouncement for the second quarter, down from a 3-to-1 ratio in the first quarter.
But even if earnings aren't robust, corporate outlooks for the second half could still sustain the recent gains. "The second quarter is expected to be a soft spot, but for the first time in many months, analysts have stopped slashing earnings estimates for the second half, which could signal the economic recovery is truly at hand," said Joe Cooper, research analyst at Thomson First Call.
Investors were eyeing
results after the closing bell. Both stocks have enjoyed huge run-ups along with the Nasdaq: Yahoo is up 85% since March 11, while Genentech has more than doubled. Yahoo rose 19 cents, or 0.5%, to $35.29, and Genentech advanced 89 cents, or 1.2%, to $77.38.
gained 7 cents, or 0.4%, to $18.80. Earlier, the stock had been 2% higher on a misinterpretation of Chief Executive John Chambers' comments on the information-technology market. The Dutch newspaper
Het Financieele Dagblad
reported that Chambers expected a recovery soon. The company later clarified the remarks, saying Chambers was only saying that companies will start spending, but only after business picks up.
J.P. Morgan raised its rating on
to overweight from neutral, citing the resolution of the oil-services company's asbestos issues. Halliburton shares rose 62 cents, or 2.7%, at $23.45.
and Brown & Williamson, a unit of
British American Tobacco
, are reportedly in talks about merging their U.S. tobacco operations,
The Wall Street Journal
reported. RJR shares lost $1.03, or 2.7%, to $37.10.
The Commerce Department reported that wholesale inventories unexpectedly fell 0.2% in May. Economists had expected the number to rise 0.2%, but companies continued to shrink stockpiles amid weak demand.
Treasuries were higher, with the yield on the 10-year note at 3.7%, while crude was up in London. The dollar was lower against the yen and euro.
The downbeat mood followed a mixed session in Europe. London's FTSE was down 0.5% at 4054, and Germany's Xetra DAX was down 0.8% at 3317. In Asia, Japan's Nikkei gained 0.9% to 9990, while Hong Kong's Hang Seng rose 0.4% to 10,027.
On Tuesday, the Dow finished up 6.30 points, or 0.07%, at 9223.09. The S&P 500 gained 3.42 points, or 0.3%, to 1007.84, while the Nasdaq gained 25.75 points, or 1.5%, to 1746.46.