Updated from 4:06 p.m. EST
The January rally sustained another broadside Wednesday as profit shortfalls at
empowered bears at the onset of earnings season.
bore the brunt of the trauma, falling 23.05 points, or 1%, to 2279.64 to bring its two-day slide to 37 points, or 1.6%. The tech-heavy index remains up 3.4% since Jan. 1 after climbing in eight of the year's first nine sessions. The
Dow Jones Industrial Average
, meanwhile, lost 41.46 points, or 0.38%, to 10,854.86, while the
lost 5 points, or 0.39%, to 1277.93.
"The market reacted well today to a lot of bad news, as selling was contained to technology," said Paul Nolte, director of investments with Hinsdale Associates. "This was a tech-driven selloff as other areas seemed to fare well. The worst may not be over with, but we may have a better market tomorrow."
The 10-year Treasury bond was down 1/32 in price to yield 4.34%, 1 basis point above the yield of the two-year note, while the dollar fell against the yen and euro.
"The market is spooked," Paul Mendelsohn, chief investment strategist with Windham Financial, said, citing bad earnings, rising oil prices and the inverted Treasury curve. "It's impossible for the market to move much higher until some of these issues are resolved."
About 1.69 billion shares changed hands on the
New York Stock Exchange
, with decliners beating advancers by a 9-to-7 margin. Volume on the Nasdaq was 2.32 billion, with decliners outpacing advancers 8 to 7.
Stocks got no relief from a better-than-expected reading on inflation. The government's consumer price index fell 0.1% last month while the core CPI rose 0.2%. Economists expected plus-0.2% readings on both. A
beige book report showing continued expansion in most regions of the economy also went largely ignored.
The selloff, which follows 0.6% declines Tuesday, brings more pressure to bear on the 2006 rally, which entering Wednesday had lifted the Dow 179 points, or 1.7%, and the Nasdaq Composite 98 points, or 4.4%. A postclose earnings report from
failed to revive spirits.
"The rally that began this year was so strong that you have to give the bulls the benefit of the doubt and assume the rally could continue," said Ken Tower, chief market strategist with CyberTrader. "It's still early to get extremely pessimistic, but the bulls should view the overnight selloff as a warning signal. The groundwork is being laid for a move to the bottom of the channel."
Investors face a spectrum of bearish catalysts. In addition to tech's earnings travails, concerns over energy prices continued to weigh on sentiment as political brinksmanship in Iran and rebel attacks in Nigeria continued to raise anxiety. In a choppy trading session, February crude finished down 58 cents to $65.73 a barrel. Earlier, crude traded as high as $66.93 a barrel. Natural gas dropped 47 cents, or 5%, to close at $8.69 per million British thermal units, its lowest level in over six months.
"When oil moved up near $70 a barrel last time, it really stalled things," Mendelsohn said. "We're seeing those fears of a similar impact creeping again. With oil higher, there are fears of what future CPI and PPI numbers will look like."
Shares of both Intel and Yahoo! fell sharply primarily because of weak sales and profit guidance for the current quarter.
also finished lower on a mixed earnings report.
To view Gregg Greenberg's video take on today's market, click here
At Intel, fourth-quarter earnings rose 16% to $2.45 billion, or 40 cents a share, while revenue rose 6% to $10.2 billion. Analysts were expecting earnings of 43 cents a share on sales of $10.56 billion. Intel blamed unexpectedly weak sales of computer microprocessors and said PC makers might have built up excess inventory.
Looking ahead, Intel sees second-quarter revenue of $9.1 billion to $9.7 billion, well short of Wall Street's $10 billion consensus estimate. The company sees profit margins falling to about 59% in the first quarter from 61.8% in the fourth quarter. Intel traded just above $23 after hours, a level not seen in the stock since early November.
Intel faced three separate downgrades Wednesday morning, from Citigroup, UBS and Piper Jaffray. Intel slid $2.92, or 11.5%, to $22.60. The decline in Intel pressured the Philadelphia Semiconductor Sector index, which finished with just a 0.1% gain.
Yahoo! said fourth-quarter earnings rose 83% to $683 million, or 46 cents a share, and came in at 16 cents a share when adjusted for items, matching estimates. Net revenue rose 36% from a year ago to $1.07 billion, which also matched the consensus view.
Problems emerged on Yahoo!'s postclose conference call, on which executives pegged first-quarter net revenue at between $1.04 billion and $1.1 billion, a range that investors interpreted as falling short of the $1.09 billion consensus. Yahoo! dropped $4.93, or 12.3%, to $35.18.
fell hard after Stifel Nicolaus downgraded the stock to sell from hold, citing valuation concerns. Google tumbled $22.20, or 4.8%, to close at $444.91.
IBM, meanwhile, could do little to relieve the post-Intel gloom even though its fourth-quarter earnings were much better than expected. The computer giant earned $3.19 billion, or $1.99 a share, compared with $2.83 billion, or $1.67 a share, a year ago. Adjusted earnings of $2.11 a share were 17 cents ahead of the consensus.
Things weren't as rosy on IBM's top line, which showed a 12% decline to $24.43 billion because of the exclusion of the divested PC division. Analysts were forecasting revenue of $25.5 billion. Analysts pointed to a shortfall in the company's services division, although they were encouraged by stronger-than-expected bookings. IBM rose 80 cents, or 1%, to $83.80.
Wednesday morning's earnings news were marginally better, with
reporting a 62% jump in year-over-year profits to $2.70 billion, or 76 cents a share. Adjusted earnings were a penny ahead of estimates. The stock closed down 43 cents, or 1.1%, to $39.28.
said it earned $86 million, or 10 cents a share, in its fourth quarter, up from $56 million, or 7 cents a share, last year. Adjusted earnings of 12 cents a share, however, were a penny shy of estimates. Southwest gained 89 cents, or 5.6%, to $16.76.
posted fourth-quarter net income of $187 million, or 14 cents a share, soaring from $53 million, or 4 cents a share, a year ago. Analysts expected earnings of 14 cents a share, according to Thomson First Call. Shares slid 36 cents, or 2.4%, to $14.62.
Apple reported a fiscal first-quarter net profit of $565 million, or 65 cents a share, up from $295 million, or 35 cents a share, a year ago. Revenue was up almost 65% to $5.75 billion from a year ago. The Thomson First Call consensus was for earnings of 61 cents a share on revenue of $5.54 billion.
Looking ahead, Apple expects second-quarter EPS of 38 cents a share on revenue of $4.3 billion, below Wall Street estimates. Apple finished Wednesday's session down $2.22, or 2.6%, to $82.49. In after-hours trading, the stock was down more than 6%.
, which also reported fourth-quarter results after the bell, finished the session lower by 97 cents, or 2.1%, to $44.44. The Internet company posted fourth-quarter earnings of $279.2 million, or 20 cents a share, up from $205.4 million, or 15 cents a share, a year ago. Excluding items, eBay had earnings of 24 cents a share, beating expectations by 2 cents. Revenue was up 42% to $1.3 billion from last year, in line with estimates.
However, eBay traded down in the after-hours session as the company offered 2006 guidance that was below the Thomson First Call consensus.
The earnings deluge drowned out the latest development in
takeover saga. Guidant late Wednesday took the widely anticipated step of declaring an $80-a-share buyout offer from
superior to a $71-a-share bid from
Johnson & Johnson
. J&J has roughly a week to come back with a higher offer for the device company.
Guidant was lower by 31 cents, or 0.4%, to close at $75.91. Boston Scientific tacked on 3 cents, or 0.1%, to $23.93. J&J gained 91 cents, or 1.5%, to $62.19.
The Amex Airline index was one of few sectors finishing higher Wednesday, soaring 4.5%. The Philadelphia/KBW Bank Sector index managed a 0.1% rise, while the Amex Oil index slid 1.5%, the Philadelphia Oil Service Sector index fell 1%.
On Thursday, earnings reports are expected from
Overseas markets were also a factor, with Japan's Nikkei falling another 3% as nervousness grew over government interest in Internet company Livedoor. Livedoor was raided by prosecutors on Tuesday and is now suspected of hiding losses from investors, according to local wire reports.
The Nikkei, which lost 2.9% Tuesday, shed 3% Wednesday to 15,341, with the Tokyo Stock Market forced to close 20 minutes early amid a flood of sell orders. Elsewhere, London's FTSE 100 was off 0.6% to 5664, Germany's Xetra DAX shed 1.2% to 5396, and Hong Kong's Hang Seng fell 0.6% to 15,481.