Updated from 4:23 p.m. EDT
Stocks in the U.S. sold off sharply Thursday as a profit shortfall at
and a downgrade of
pressured the major averages and more than erased the prior session's gains.
Dow Jones Industrial Average
sank 362.14 points, or 2.6%, to 13,567.87. The
lost 40.94 points, or 2.64%, at 1508.44, and the
tanked 64.29 points, or 2.25%, to 2794.83.
Two members of the Dow were notable losers, led by Citi, who fell $2.85, or 6.9% to a 52-week low at $38.51 after CIBC World Markets cut its rating on the stock and said it might be facing a huge capital shortfall. Credit Suisse also downgraded Citi.
Several brokers fell in sympathy.
was down 5.8%,
lost 5%, and
"Sentiment has clearly turned decidedly negative, with Citigroup's multiple downgrades responsible for additional investor nervousness among financial stocks," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "Yesterday the market overreacted to the
Federal Reserve rate cut, but a combo of record high oil and Citigroup news really changed investor's position by 180 degrees today."
Also dropping was Exxon Mobil. The oil giant's stock declined $3.49, or 3.8%, to $88.50 after its latest quarterly report, which showed profits that were 5 cents short of analysts' expectations of $1.75. Weak refining margins were the primary culprit.
Breadth was markedly weaker. On the
New York Stock Exchange
3.31 billion shares changed hands, as decliners trounced advancers by a 7-to-1 margin. Volume on the Nasdaq reached 2.52 billion shares, with losers beating winners 5 to 1.
Last time out, stocks surged following the Fed's decision to trim 25 basis points off the fed funds rate. The Dow seesawed during the session, but when the final bell rang, it had a gain of 137.54 points, or 1%, at 13,930.01.
The S&P 500 jumped 18.36 points, or 1.2%, to 1549.38, and the Nasdaq was better by 42.41 points, or 1.51%, at 2859.12.
"Looking at this decline, it's a little bit overdone," Robert Pavlik, chief investment officer with Oaktree Asset Management, said earlier. "Even though the Fed hasn't indicated any chance of another rate cut, they're willing to step in if the economy needs it. The hawkish statement that accompanied the Fed cut yesterday is now the focus, while the Citigroup and Exxon news certainly isn't helping."
Art Hogan, chief market analyst with Jefferies, said the pullback should be viewed as a typical hangover following a Fed interest rate decision.
"We had our celebration, but we forgot the Fed shifted their balance," said Hogan. "The guaranteed rate cut is gone, and investors are now looking at the news differently. If you drill down deeper into the Fed's statement and look at what's been affecting the market, there's more bad news than good news, and that's why we have this move today."
Meanwhile, crude prices topped $96 a barrel for the first time ever in electronic trading. The front-month December contract, though, ended with a loss of $1.04 at $93.49 a barrel.
Exxon Mobil wasn't the only energy name reporting, as both
said profits fell year over year, with soft margins playing a considerable role in the declines. Marathon lost 2.5% to $57.67, and Tesoro dropped 5.4% to $57.29.
fell after its earnings slumped, while
Sprint fell 3% to $16.58, CVS closed lower by 1.5% at $41.03, and Kodak lost 3.1% to $27.76.
reported a third-quarter profit that rose 16% from a year ago and beat Wall Street's expectations, although revenue missed targets. The company also raised guidance for 2007. Medco finished up $2.25, or 2.4%, to $96.63.
reported a third-quarter profit that tripled year-ago results, but
, on the other hand, reported a 29% decline in earnings from a year ago. Dominion slumped 1.7%, and PG&E slid 5.5%.
On the economic front, the Commerce Department said personal income rose 0.4% in September, as expected. The report also noted that disposable personal income increased 0.4%, and personal consumption expenditures increased 0.3%.
"Consumer spending continued to support economic growth through the third quarter," said Peter Morici, professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission. "However, with rising energy prices, a sluggish jobs market and falling home values dragging on consumer confidence, consumer spending will grow slowly in fourth quarter."
Additionally, the Labor Department said initial jobless claims fell by 6,000 last week to 327,000 claims. Also, the Institute for Supply Management said its manufacturing index fell to a reading of 50.9 last month from 52.0 in September. The number fell short of estimates and was the lowest since March.
The releases were the last before the Labor Department's important monthly nonfarm payrolls report on Friday. Economists expect that the U.S. economy added 80,000 jobs last month.
Treasury prices were rallying as traders moved into the so-called safe haven of bonds. The 10-year note was up 31/32 in price, cutting the yield to 4.35%. The 30-year bond rose 1-26/32 in price, yielding 4.64%. The dollar was giving up ground against the euro.
Overseas markets were mixed. London's FTSE 100 was down 2%, the Paris CAC 40 was off 2%, and Germany's Xetra Dax was 1.7% lower. In Asia, Japan's Nikkei 225 added 0.8% overnight, while Hong Kong's Hang Seng tacked on 0.5%.