About the only solace for stockholders on Wednesday was that trading volume didn't materially rise and pronounced early weakness didn't accelerate into something worse. Beyond that, there was little for bulls to bellow about.


Dow Jones Industrial Average

closed down 1.4% to 8723.18, ending just above its intraday low around 8702. The

S&P 500

finished lower by 1.4% to 918.22 vs. its nadir of 916.70, while the

Nasdaq Composite

was off 1.5% to 1438.80 after trading as low as 1435.30.

Just under 1.4 billion shares traded in

Big Board

activity, where declining stocks bested advancers 19 to 12, nearly a mirror image of Tuesday's action. In over-the-counter trading, nearly 1.5 billion shares changed hands, not huge, but up 15% from the prior day, while declining stocks bested advancers 18 to 13.

Traders had little time to reflect on Wednesday's session, as corporate news after the close was thick.

Results included better-than-expected results from





(SYMC) - Get Report




, as well as an upside preannouncement from

IDEC Pharmaceuticals



However, those names were mixed in after-hours activity, with Yahoo! and QLogic lower while Symantec and IDEC were on the upswing. Meanwhile S&P futures were down slightly in Globex activity as of 5:10 p.m. EST, suggesting traders were having a hard time shaking off Wednesday's action.

More likely, market participants were nervously anticipating Thursday's economic reports -- including the consumer price index and Philadelphia Fed survey -- and a heavy slate of corporate earnings, including


(MSFT) - Get Report



(IBM) - Get Report

after the close.

Intel Sets the Downbeat

The precipitating event for Wednesday's selloff was


(INTC) - Get Report

forecast late Tuesday. The chip giant's fourth-quarter results bested expectations, but the firm gave subdued guidance. Most troubling to bulls, Intel said 2003 capital expenditures will be $3.5 billion to $3.9 billion, down from $4.7 billion in 2002, significantly less than the most optimistic forecasts and vs. consensus estimates of about $4 billion to $4.2 billion.


contributor Paul Kedrosky observed that Intel's actual capex has been lower than the company forecast every year since 1996, save for 1999 and 2000 -- the tech bubble's peak years. If you believe investors are sophisticated and aware of that, perhaps they're now expecting even less than $3.5 billion to $3.9 billion of capital expenditures from Intel in 2003.

Intel bulls contend the company's lowered capex is a result of greater efficiency of new technologies. Nevertheless, Intel's outlook cast a pall on a chip sector that had rallied sharply in the days prior to its report. Intel fell 2.2% and chip-equipment makers were hit harder, with

Applied Materials

(AMAT) - Get Report

falling 5.2%. The Philadelphia Stock Exchange Semiconductor Index closed off 3.5%.

Reflecting on the action in chips, it strikes me that when a company or sector rallies in anticipation of a key earnings report, the resulting action is likely to be downward unless the report is unabashedly positive. That may seem obvious to some readers, but obviously more than a handful of market participants were leaning the wrong way (i.e. too bullish) heading into Intel's report. Just something to think about as earnings season accelerates in the coming week or so.

In addition to weakness in chips, major averages were dragged down by profit warnings from


(DD) - Get Report

, which fell 3.4% and was the biggest drag on the Dow, and

Automatic Data Processing


, which closed down 8%.

Weaker-than-expected producer prices, a bland beige book report from the


, another rise in oil prices, and North Korea's rejection of an American offer to hold talks regarding its nuclear program also weighed on shares.

The stock market's setback was accompanied by the latest

Investors Intelligence

poll, which showed bullish sentiment rising to 50% for the week ended Jan. 10, its highest level since Nov. 8. Meanwhile, bearish sentiment slipped to 27.2%. Among other sentiment indicators, the CBOE Market Volatility Index, which entered the week at its lowest levels since late November, rose 4.9% to 27.86.

Excessive optimism combined with the technical overbought condition mentioned here

yesterday conspired with the aforementioned fundamental developments to send shares lower.

The Economy, Commodities, Etc.

On the economic front, the producer price index was unchanged in December and down 0.3%, excluding food and energy. Expectations were for a rise of 0.3% for headline PPI and 0.1% for the core. For all of 2002, PPI rose 1.2%. Meanwhile, the core PPI fell 0.4%, its biggest drop since the government started tracking such prices in 1973,



As detailed

here, the PPI report revived fears of deflation, which put further downward pressure on equities. Both factors, in turn, helped solidify demand for Treasuries. The price of the benchmark 10-year note rose 4/32 to 99 16/32, its yield falling to 4.06%.

Amid heightened concerns about potential war with Iraq, ongoing unrest in Venezuela and the American Petroleum Institute reporting a sharp drop in oil supplies, the price of crude rose 2.6% to $33.21 per barrel. However, the price of gold fell 0.4% to $351.10 despite the geopolitical concerns and the sharp drop in equity proxies. If gold remains subdued, it will encourage those who believe the metal has established a near-term top, as discussed

here the prior two days.

Still, gold shares outperformed Wednesday, with the Philadelphia Stock Exchange Gold & Silver Index up 0.3%.

Freeport-McMoran Copper & Gold

(FCX) - Get Report

rose 0.1% while



gained 2.4% after each were upgraded by UBS Warburg, which raised its forecast on gold's average price in 2003 to $353 per ounce from $320 previously.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.