Stocks Decline on Disappointing Earnings News
Wall Street resumed its slide Wednesday, hit by disappointing earnings reports and some downbeat comments from billionaire investor Warren E. Buffett.
Stocks were unable to extend a two-day winning streak despite generally encouraging economic data, lower oil prices, a stronger dollar and a dip in long-term Treasury bond yields.
After the closing bell, EBay set the scene for what could be another rough session today, as the Internet auction company reported fourth-quarter earnings that fell short of analysts’ average estimate.
EBay’s shares tumbled to $91 in after-hours trading from a closing price of $103.05.
In regular trading, the Dow Jones industrial average slumped 88.82 points, or 0.8%, to 10,539.97, taking back the lion’s share of the 122 points gained in the previous two sessions.
The broader Standard & Poor’s 500 index lost 11.35 points, or 1%, to 1,184.63.
The technology sector was hit hardest by the day’s selling, driving the Nasdaq composite down 32.45 points, or 1.5%, to 2,073.59.
The market fell at the opening as investors registered disapproval of earnings reports or forecasts issued late Tuesday by tech companies including Motorola, Rambus and Teradyne.
Motorola slid $1.23 to $16.20, Rambus plunged $3.46 to $17.85, and Teradyne lost 98 cents to $14.36.
Reports Wednesday from J.P. Morgan Chase, Pfizer and Lucent Technologies, among others, also were poorly received.
In a familiar pattern, selling accelerated in the final hour of trading.
A raft of upbeat bank earnings reports Tuesday helped lift the market in that session, which might have boosted hopes for J.P. Morgan Chase.
“I think generally people were expecting that we’d have decent numbers from J.P. Morgan,” said Som Dasgupta, a trader at PNC Bank in Pittsburgh.
Instead, J.P. Morgan Chase said its earnings dropped 11% last quarter because of charges related to its merger with Banc One last year. The stock slid 56 cents to $37.84.
Pfizer gave up 42 cents to $24.88 after its quarterly results missed analysts’ estimates. Lucent slid 28 cents to $3.42 as sales lagged behind forecasts.
Although many companies have reported gains in fourth-quarter profit, “it’s becoming evident that so far earnings at best are just OK, not great,” said Peter Boockvar, strategist at Miller Tabak & Co. in New York.
Because of the sharp run-up in share prices in November and December, any disappointment over earnings can trigger profit taking, analysts said.
Investor sentiment also was hurt after mortgage giant Fannie Mae said late Tuesday that it would cut its dividend in half to preserve capital after being forced to restate earnings because of accounting problems. Its shares fell $2.27 to $67.43.
Maytag slid $1.94 to $16.73 after retailer Best Buy said it would stop selling the company’s appliances to make room for more popular brands.
Buffett may have egged on the market’s decline by saying on CNBC-TV that he expected the dollar to continue to fall and that he was having a hard time finding stocks to buy -- a complaint he has made before.
“Buffett has been wrong plenty of times, but he can still move the markets on a short-term basis,” said Steve Todd, editor of the Todd Market Forecast in Mission Viejo.
Falling stocks outnumbered winners by 3 to 2 on the New York Stock Exchange and by 2 to 1 on Nasdaq.
Some analysts said it was worrisome that the market couldn’t gain any traction from upbeat economic reports. The Federal Reserve’s latest report on the economy, the so-called beige book, showed that the expansion continued in recent weeks, and said inflation was “largely in check.”
The government’s official inflation gauge, the consumer price index, rose 3.3% last year but declined in December, the Labor Department said.
In commodities trading, near-term crude oil futures sank 83 cents to $47.55 a barrel and fell further in after-hours activity following the government’s weekly report on oil inventories. U.S. stockpiles rose by 3.4 million barrels last week, bringing supplies to about 8% above their level at this point last year.
In other markets, the dollar continued its rally, driving the euro down to $1.299 from $1.303 on Tuesday. And the benchmark 10-year Treasury note yield slipped to 4.17% from 4.19%.
