Updated from 4:08 p.m. EDTStocks collapsed Wednesday, as a strong earnings season has seemingly lost its power to consistently distract investors from concerns about global demand and the inflationary effects of a growing U.S. economy. The Nasdaq Composite led declines, once again plunging below the 2000 mark. It closed down 42.99 points, or 2.12%, to 1989.54 -- its biggest one-day decline since March 15. Losses spread across the tech sector, with the GSTI Software Index closing down 2.6%, the Amex Network Index falling 2.8% and the Amex Biotech Index down 3.4%. The Dow Jones Industrial Average shed 135.56 points, or 1.29%, to 10,342.60, and the S&P 500 was down 15.74 points, or 1.38%, to 1122.41. The 10-year Treasury bond traded down 25/32 in price to yield 4.49%, while the dollar was higher against the euro and the yen. In high-volume action, more than 1.8 billion shares traded on the New York Stock Exchange, and decliners outnumbered advancers by about 7 to 2. On the Nasdaq, more than 2 billion shares changed hands, and advancers outnumbered decliners by about 4 to 1. Both the Dow and Nasdaq fell below their 50-day simple moving averages Wednesday. A recent bounce to bring the indices near those levels in the middle of the trading day was turned away, and stocks subsequently drifted lower. However, all major indices merely fell to levels seen just last week, as range-bound trading continues. (Since March 30, the Nasdaq has moved to close above or below the 2000 mark eight times.) For the year, the Dow is down 0.1%, the Nasdaq is down 0.7%, and the S&P is up 0.9%. Precious metals futures showed weakness after People's Bank of China Vice Governor Wu Xiaoling said growth in the largest copper-consuming country will slow to less than 8% this year from a six-year high of 9.1% in 2003, according to Bloomberg. Copper futures were down 5%, while silver prices lost 5.9% and the CBOE Gold Index was losing 7.3%.
Other macroeconomic concerns continued to impact the market. Chinese Premier Wen Jiabao said his country must be careful in reforming its fixed currency, because any drastic change could spell trouble for its economy and that of the rest of the world, according to a report from Reuters. "China's premier is indicating, as he has before, that they have to slow their economy down, and that's absolutely reflected in the markets," said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum. "On top of that, the financials are still hurting from the perception of higher interest rates." "Also, people are nervous about the escalating geopolitical terrorism in the Middle East," Hyman added. "We learn every day that you just can't ignore it." U.S. forces in Iraq continued an aerial bombardment of guerrilla positions in the town of Falluja in an effort to quell insurgent uprisings. "Because there is no economic news out there, this looks like a carryover from yesterday's gains in anticipation of tomorrow's GDP number," said Trip Jones, managing director at SunGard Institutional Brokerage. "If the GDP is a little stronger than expected, we could get a big breakthrough in the bond market -- meaning a four-year trend-line that gets broken when the yield on the 10-year goes above 4.5%. That's a big, big deal." Jones said he expects Thursday's gross domestic product figure, along with more economic data due out Friday, to be stronger than expected, which would exacerbate the already widespread concerns about an upcoming hike in interest rates. "That would be a real problem," he said. Economists expect the advance GDP reading for the first quarter, due out Thursday morning at 8:30 a.m. EDT, to be 5%, up from an annualized growth rate of 4.1% for the fourth quarter of 2003. The chain deflator is expected to show a growth-rate of 2%, compared to 1.5% for the fourth quarter.
Phillip Roth, chief technical market analyst at Miller Tabak & Co., said the markets are in the process of building a top. "Things have been deteriorating for weeks," he said. "I don't think the market's ready to fall apart, but interest rates are rising and earnings are rising. Normally in that environment, you get selective strength until interest rates finally are 'too high,' and then everything goes down. "Most everything should consolidate somewhat here," he added, "but I think the areas that can still make progress going into a top are energy, industrial cyclicals and consumer cyclicals -- in other words, all economy-sensitive areas. I'd be wary of interest rate sensitive areas, which I think are basically broken. I also think the technology sector has already rolled over." Shares of Nortel ( NT) dropped $1.60, or 28.4%, to $4.04 after it said it would restate results for 2000 to 2003 and delay filing of its first-quarter 2004 report as a result of a review by its audit committee. The company also fired CEO Frank Dunn and two top finance officers. Elsewhere, Cable giant Comcast ( CMCSA) dropped its $48 billion hostile bid for Disney ( DIS) Wednesday morning, citing opposition on the entertainment giant's board. Comcast's Class A shares closed up 23 cents, or 0.8%, to $30.20, while Disney fell 23 cents, or about 0.9%, to $23.95. Comcast also reported that it swung to a first-quarter profit of $65 million, or 3 cents a share, from a loss of $297 million, or 13 cents a share, last year. The 2004 quarter profit was 4 cents shy of analyst estimates. At Wednesday's opening bell, Thomson One Analytics reported that 341 companies of the S&P 500 had reported earnings thus far into the season. Of those, 266 companies, or 78%, have come in above Wall Street's expectations. Meanwhile, 37 companies, or 11% of those companies reporting, have matched expectations, and 38 companies, have disappointed. Compared with last year, overall first-quarter earnings growth stands at 25%.
Boeing ( BA) posted a first-quarter profit after reporting a loss in the same quarter last year. The commercial jetmaker and Pentagon contractor earned $623 million, or 77 cents a share, up from last year's loss of $478 million, or 60 cents a share. Its stock finished up 48 cents, or 1.1%, to $44.03. Bristol-Myers Squibb ( BMY) reported a 22% increase in first-quarter net income and beat expectations by a penny on an operating basis. The pharmaceuticals company earned $964 million, or 49 cents a share, compared with $792 million, or 41 cents a share, for the same quarter last year. Its stock ended up 76 cents, or 3%, to $25.48. Also, Halliburton ( HAL), the oilfield services company that has made headlines for its work in Iraq, swung to a first-quarter loss after it took charges for a proposed asbestos and silica settlement. It posted a net loss of $65 million, or 15 cents a share, down from last year's net income of $43 million, or 10 cents a share. Its stock fell 66 cents, or 2%, on the day to $31.01. Overseas markets were mostly lower, with London's FTSE 100 closing down 1.1% to 4524 and Germany's Xetra DAX losing 1.6% to 4066. In Asia, Japan's Nikkei fell 0.3% to 12,004, while Hong Kong's Hang Seng added 0.1% to 12,165. Economic data will take center stage Thursday morning. Along with the GDP figures, economists are expecting a 0.9% jump in the first quarter's employment cost index, due out at 8:30 a.m. EDT. The government reported a rise of 0.8% in the fourth quarter of 2003. Also, initial jobless claims for the week ended April 24 are expected to total 343,000, down from 353,000 recorded in the previous week. At 10 a.m. EDT, the Conference Board is expected to say its help-wanted index gained a point in March to reach 41.
More than 80 companies will release first-quarter results before the opening bell, including Dow Chemical ( DOW), expected to report earnings of 43 cents a share, up from last year's 9 cents a share; GlaxoSmithKline ( GSK), expected to match last year's profits at 69 cents a share; Raytheon ( RTN), expected to report earnings of 21 cents a share, down from last year's 27 cents a share; and Gillette ( G), expected to report earnings of 29 cents a share, up from last year's 25 cents a share.