Stocks slid Tuesday after a suprisingly weak retail sales report punctured the market's optimism about the economy.
The poor sales data, combined with a sharp drop in wholesale prices, came just as the corporate earnings season, usually a volatile time in the market, got underway. The Dow Jones industrials lost nearly 140 points.
Underscoring the market's sensitivity, shares in Intel fell sharply in after-hours trading after the chipmaker reported weaker results after the bell and didn't offer a forecast for revenue.
Investors are already braced for bad earnings but are highly anxious about forecasts from companies that could indicate a weaker economy. Poor outlooks in the last earnings season in January derailed a 20% rally, and some fear the market's current five-week rally could be vulnerable as well.
Financial stocks tumbled after Goldman Sachs Group announced strong profits but said it would raise $5 billion to repay government bailout money. Investors speculated that other major banks might follow suit, which would put pressure on their stocks. Citigroup and JPMorgan Chase are also due to report results this week.
The Dow closed down 137.63, or 1.7%, at 7,920.18.
Broader measures also lost ground after three days of gains. The Standard & Poor's 500 index fell 17.23, or 2%, to 841.50, and the Nasdaq composite index fell 27.59, or 1.7%, to 1,625.72.
Tuesday's selling was orderly and extended a give-and-take pattern the market has followed since halting a steep slide over the first two months of the year. Stocks have risen from 12-year lows since then on hopes that banks are getting through the worst of their problems and the economy might be bottoming out, though both the Dow and S&P 500 are still below where they started the year.
The unexpected 1.1% slump in retail sales in March undermined the market's brightening outlook for the economy. The drop was far worse than the increase of 0.3% that analysts polled by Thomson Reuters expected and marked the biggest fall in three months. Investors watch retail sales trends closely as a barometer of consumer spending, which makes up two-thirds of U.S. economic activity.
"The choppy data that we're seeing, whether it's economic or earnings, reminds us that we're still not out of the woods," said Sean Simko, head of fixed income management at SEI Investments in Philadelphia. "The market always has a tendency to go too far too fast."
Investors took little comfort from speeches by President Barack Obama and Federal Reserve Chairman Ben Bernanke that there have been hopeful signs about the economy but that a sustained recovery won't arrive quickly.
A separate report on wholesale prices gave another poor reading on the economy.
The Labor Department said wholesale prices tumbled 1.2% in March as the cost of gasoline, other energy products and food fell sharply. Falling prices fan worries about a spiraling effect where consumers and businesses would cut spending out of fear that they would pay too much for something today that could be worth less tomorrow.
The drop in stocks followed more signs that some companies reporting earnings for the first quarter might be able to top Wall Street's modest expectations.
After the end of trading Tuesday, railroad operator CSX said its first-quarter profit fell 30% from a year earlier, but the results came in well above Wall Street's expectations.
Johnson & Johnson said before the opening bell that its first-quarter profit dipped, but not as much as expected. The health care products maker was one of four stocks among the 30 that make up the Dow industrials to show a gain. The stock rose 22 cents to $51.37.
Goldman released its results a day early Monday, reporting after the end of trading that it earned $1.66 billion in the quarter, well above what analysts were expecting. The company said it would raise $5 billion in stock in hopes of repaying the $10 billion investment it received from the government last year.
Goldman shares fell $15.04, or 11.6%, to $115.11 after its stock offering was priced at $123 a share, a discount of 5.5% to Monday's closing price.
Most other financial stocks slid. JPMorgan fell $3, or 8.9%, to $30.70, while Morgan Stanley fell $3.22, or 12%, to $23.67.
Jeffrey Frankel, president of Stuart Frankel & Co. in New York, says investors are braced for the worst during earnings season. "There is very little that could come out that will spook traders," he said.
In other market moves, the Russell 2000 index of smaller companies fell 14.83, or 3.2%, to 453.22.
Two stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 7.3 billion shares compared with 6.3 billion shares traded Monday.
Bond prices rose after the weak economic readings. That pushed the yield on the 10-year Treasury note down to 2.79% from 2.86% late Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 64 cents to settle at $49.41 a barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average fell 0.9%. Britain's FTSE 100 rose 0.1%, Germany's DAX index gained 1.5%, and France's CAC-40 rose 0.9%.