Stocks sensitive to the economy's swings took a dive Wednesday as some investors began to focus on the dark side of slowing business activity.
The Dow Jones industrial average fell below 4,000, losing 16.25 points to 3,994.80, led by steep losses in shares of General Motors and Caterpillar.
The broad market also was lower, with losers outnumbering winners by 1,254 to 1,010 on the Big Board in active trading.
Stocks have rallied for the past two months on hopes for a slowing economy, which in theory would allow interest rates to continue declining.
But some investors now may be concerned about the effects of a weaker economy on corporate profits, traders say.
"It's late in the earnings cycle, and when earnings momentum peaks, you usually see that reflected in the stock market," said Edward Goldfarb, head of portfolio strategy at Aeltus Investment Management in Hartford, Conn.
On Wednesday, the Big Three auto shares fell after the companies reported mixed sales results for February, suggesting that higher interest rates are hurting consumer demand for cars.
In another closely watched report, the National Assn. of Purchasing Management said its overall index of manufacturing activity dropped to 54.5% in February from 57.9% in January, indicating the economy is still expanding, but at a slower rate.
The bond market, meanwhile, seemed to be more concerned about the government's revision of fourth quarter economic growth. Business inventories in the quarter were much lower than originally reported, which some investors viewed as affording better near-term pricing power to manufacturers--potentially inflationary.
Bond yields closed marginally higher, with the 30-year U.S. Treasury bond yield inching up to 7.45% from Tuesday's six-month low of 7.44%.
Among Wednesday's highlights:
* Auto stocks led the market lower. GM dropped 2 1/8 to 40 1/2, Chrysler sank 2 to 41 3/8 and Ford eased 1/2 to 25 5/8.
* Other "cyclical" industrial stocks losing ground included Caterpillar, off 1 3/8 to 50 1/4; Deere, down 2 1/8 to 74 3/8; Phelps Dodge, off 1 1/2 to 53; Ingersoll-Rand, off 1 3/8 to 30 1/2; Fluor, down 1 1/8 to 47 5/8, and Navistar, which lost 1/2 to 14.
* Many transportation stocks also were lower. Roadway fell 1 3/4 to 52 1/2, rail giant CSX lost 1 3/4 to 76 and Northwest Airlines slumped 1 3/8 to 23 1/4.
* Some technology stocks bucked the market's trend and continued their recent rally. Texas Instruments, which said it expects the worldwide semiconductor market to grow by about 21% this year, jumped 2 1/4 to 81.
Other winners included Micron Technology, up 2 7/8 to 64 7/8; Computer Associates, up 1 3/4 to 59; Hewlett-Packard, up 2 to 117, and BMC Software, up 1 1/2 to 65 3/4.
Also, America Online shot up 11 1/4 to 82 1/4 after German media group Bertelsmann said it would take a 5% stake in the firm and had an option to raise its stake to 10%.
* On the downside, cable TV equipment firm Ortel plunged 4 1/8 to 19 7/8 after the Alhambra-based company said it expects that its percentage of sales from its largest customer, General Instrument, will decline in the near-term.
Also losing ground was Hilton Hotels, which fell 2 1/2 to 67 3/4 after an Oppenheimer analyst cut first-quarter earnings estimates by 14%, citing big wins by some gamblers at the Las Vegas Hilton hotel.
* Precious-metals stocks dropped as gold and silver prices slid, reflecting concerns about a slower economy. ASA sank 1/2 to 42 3/4 and American Barrick gave up 3/4 to 21.
In foreign trading North and South American markets generally had a rough day. Canada's TSE-300 index tumbled 41.06 points to 4,083.75 on renewed federal-budget concerns, and in troubled Mexico the Bolsa index dropped 31.88 points to 1,517.96 after surging 102 points on Tuesday. In Argentina, the Merval index tumbled again, losing 5.5% to 304.83.
In Tokyo, traders said selling linked to arbitrage unwinding in futures pummeled the Nikkei 225 index, which slid 434.72 points to 16,618.71.