Investors Cash In on Rally Again

They take little away from Greenspan's remarks, and focus on Dell's results.
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Updated from 4:02 p.m. EST

Stocks ended solidly in the red in Thursday trading as investors booked profits after Wednesday's big rally.

The

Dow Jones Industrial Average

closed down 43.63 points, or 0.4%, at 10,694.07, after hitting a 32-month high Wednesday. The

Nasdaq

ended down 16.06 points, or 0.8%, at 2073.60, while the

S&P 500

finished lower by 5.65 points, or 0.5%, at 1152.11, also after hitting a 23-month high yesterday.

Dell

(DELL) - Get Report

said after the bell that it earned 29 cents a share in its most recent quarter, which beat analysts' consensus by a penny. Revenue increased 18% to $11.5 billion, which also met the consensus forecast. Nevertheless, the stock was moving down 40 cents, or 1.2%, at $33.17 in after market trading.

Volume was 1.45 billion shares on the

New York Stock Exchange

, while 1.9 billion shares changed hands on the Nasdaq.

On other markets, the 10-year Treasury note was down 6/32, to yield 4.05%, while the dollar was weaker vs. the euro, with one dollar recently worth $1.2813 per euro, near its record high touched in January. The greenback was still weak vs. the Japanese yen, lately fetching 105.36 yen.

Just a Simple Case of Profit-Taking?

After Wednesday's rally, analysts were not surprised to see the market down on Thursday.

"What we're seeing is profit-taking after yesterday's solid run-up," said Peter Cardillo, chief market analyst at S.W. Bach & Co. in New York. He said the weaker-than-expected retail sales numbers hadn't pulled down the market because excluding autos, the results beat expectations.

Charles Rotblut, director of financial content at InvesTools, agreed with Cardillo and noted that people could have been worried that Dell would have a less-than-stellar quarter.

"Today is a combination of profit-taking following the run-up yesterday and awaiting to hear what ... Dell will say," said Rotblut, adding that few other catalysts are on the horizon. "There's a question about what is going to drive the market outside of mergers and acquisitions."

But Dave Skarica, editor of AddictedtoProfits.com, offered a somewhat different view on the market's decline. "All the buyers are in and there's nothing left to get it higher," he said. "The market has become heavy with distribution. After a while, it's impossible to keep going higher."

He also noted that valuations are high and that corporate earnings have to catch up. "Valuations are stretched as far as they can go but because the Fed wants to keep rates low, that can help propel the market for a little while longer," Skarica said.

A dose of uncertainty had hung over the market earlier Thursday after the second day of

Fed

Chairman Alan Greenspan's testimony before Congress, this time before the Senate Banking Committee. The Fed chief largely kept to the text he used on Wednesday, in which he predicted a return of job growth and patient monetary policy.

It could be that Greenspan's comments today were blase enough to keep investors unmotivated, said Cardillo. "Greenspan speaking gave another optimistic outlook, but he didn't alter his remarks from yesterday."

In afternoon economic news, the government said the federal budget deficit for January was $1.4 billion, below the consensus for a surplus of $2.3 billion and compared with a surplus of $10.6 billion in January 2003.

In earlier economic reports, the government said December business inventories rose 0.3%, in line with economists' forecasts and on top of the prior month's revised increase of 0.4%.

The government also said that retail sales in January declined 0.3%, below analysts' consensus for a flat month, following December's 0.5% increase. Excluding autos, however, retail sales, jumped 0.9%, ahead of the consensus for a 0.5% increase.

Lastly, initial jobless claims for the week ended Feb. 7 came in at 363,000, above the expected 345,000 and compared with the prior week's revision of 357,000.

Meanwhile, shares of

ImClone Systems

(IMCL)

were halted in early afternoon Nasdaq trading after the company was granted regulatory approval for its cancer drug Erbitux. Shares of the company ended the day down 86 cents, or 2%, at $42.24.

In earnings news,

Aetna

(AET)

said it earned $1.32 a share in the fourth quarter, which was ahead of the consensus for $1.18 a share. Revenue, however, declined 3%. Its stock closed up $3.20, or 4.5%, $75.80.

Cable company

Cox Communications

(COX)

had a loss of 2 cents a share in its recent quarter, on a 12.5% increase in sales. Shares of Cox were down $1.03, or 3%, at $33.

CVS

(CVS) - Get Report

posted earnings of 64 cents a share in the fourth quarter, beating the Wall Street consensus for 58 cents a share. Revenue rose 17.5%. CVS shares were up $2.10, or 5.8%, at $38.23.

Waste Management

(WMI)

said it had earnings of 39 cents a share in the fourth quarter, before a change in accounting principles, which beat analysts' consensus of 33 cents a share. Revenue increased 5.5%. Shares of the company were up 39 cents, or 1.3%, at $29.39.

May Department Stores

(MAY)

reported a profit of $1.39 a share in the fourth quarter, beating analysts' consensus by 5 cents. Revenue increased about 3%. Shares of the company ended down 15 cents, or 0.4%, at $35.06.

In research, Credit Suisse First Boston downgraded shares of

Costco

(COST) - Get Report

to neutral from outperform based on valuation, while also upgrading

Family Dollar Stores

(FDO)

to outperform from neutral and boosting its target price to $42 from $40. Shares of Costco closed down $1.40, or 3.6%, at $37.75, while shares of Family Dollar were up $1.73, or 4.6%, to $39.39.

Markets overseas ended mixed, with London's FTSE 100 down 0.4% at 4377.9 and Germany's Xetra DAX down marginally at 4121.70. In Asia, Hong Kong's Hang Seng was up 0.7% at 13,625.10, and Japan's Nikkei was up 0.9% at 10,459.30.

Looking to Friday, analysts largely expect the preliminary reading of the University of Michigan's consumer sentiment index for February to move the major indices.

"The market will be looking forward to that," Cardillo said. If the results come in better than expected, Cardillo expects to see the market stabilize, after Thursday's losses. Analysts expect a reading of 103.3, from January's reading of 103.8.

Other economic news on Friday has the December trade balance out at 8:30 a.m. EST, with economists expecting a deficit of $40 billion, compared with a deficit of $38 billion in the prior month. The January import/export index also will be released at that time.