Stocks fell as profit-taking and a return of corporate profit worries ended a week-long equities rally that was kicked off last week by the Federal Reserve's fifth interest-rate cut this year.
Track Your Stocks | Check Your Portfolio
The Dow Jones industrial average fell 151.73 points, or 1.35 percent, to 11,105.51, according to the latest data. The Nasdaq Composite Index dropped 67.80 points, or 2.93 percent, to 2,246.05. The benchmark Standard & Poor's 500 index fell 19.99 points, or 1.53 percent, to 1,289.39.
The Nasdaq, which had been battered over the past year, has nonetheless risen about 40 percent by the start of this week from a two-and-a-half-year low it hit on April 4. The Dow and S&P were up about 20 percent and 17 percent, respectively, from March lows. The latest leg of the advance came after the U.S. Federal Reserve slashed interest rates last week for the fifth time this year by half a percentage point to lift the nation's economy.
"There isn't much on the horizon that would point to improving earnings in the near future," said Edgar Peters, chief investment officer at PanAgora Asset Management Inc., which manages $15 billion.
"There is going to be some improvement, but not to a level that would justify this run-up," he added. "There is some entrenchment going on. People realize they made some money and maybe should cash that in."
Setting the tone was a bearish report on the chip industry published by the trade group Semiconductor Equipment and Materials International, or SEMI. Orders from North American-based chip equipment companies plunged 41 percent in April compared with March levels, while the book-to-bill ratio plummeted to 0.42, the worst in 10 years.
The Philadelphia Stock Exchange semiconductor index dropped nearly 5 percent on Wednesday. Applied Materials Inc., the top maker of equipment used to make semiconductors, fell $3.65 to $52.94. Rival KLA-Tencor Corp.
Worries About the Euro
The losses followed the release late Tuesday of a report that showed orders for gear from North American-based chip-equipment companies plunged 41 percent to $711.8 million in April from the previous month amid the worst slump in the semiconductor industry since 1985.
Graphics semiconductor maker Nvidia Corp., however, rose $4.32 to $97.22 after it reported net income that rose 41 percent — bucking the trend of other chipmakers — as sales surged 62 percent.
Investors were also spooked by a decline in the value of the euro, the single European currency, to new multi-month lows after unexpectedly weak growth data from Germany and France. Strong German inflation data released overnight also hurt the euro and gave investors another reason to worry. U.S. multinationals have cited the weak euro in the past as one reason for earnings shortfalls.
Retailing stocks came under pressure after some downbeat earnings from sectoral firms, with the S&P retail index (.RLX) falling 2.23 percent. Among those, department store chain Dillard's Inc. (DDS.N) reported a 54 percent slide in quarterly operating profits as the slowing economy prompted consumers to cut back on purchases. Dillard's fell $2.14 to $17.38.
The second-most active stock on the New York Stock Exchange was Medtronic Inc., which fell $2.54 to $41.95. The world's largest manufacturer of medical devices reported a 15 percent rise in earnings, but its sales numbers disappointed investors and prompted some brokerages to sour on the stock. J.P. Morgan lower its investment rating on Medtronic to a "long-term buy" from "buy" and Goldman Sachs cut its price target on the stock to $53 from $60.
Agile Software, a business-to-business software firm, fell $1.43 to $19.20, after it posted a quarterly operating loss in line with lowered expectations. Novell Inc. (NOVL.O), which is transforming itself into a provider of Internet solutions for corporations, posted a loss and said it would cut 5 percent of its work force as part of a bid to return to profitability. Novell fell 35 cents, or 6.99 percent, to $4.66.
French telecoms gear maker Alcatel saw its U.S.-listed shares fall $1.56 to $30.08 on reports that merger talks with U.S. rival Lucent Technologies Inc. were moving ahead. Lucent shares slipped 19 cents at $9.71. The Wall Street Journal said boards at Alcatel and Lucent had agreed to more talks that could lead to a $34 billion merger.
Dell Computer Corp. rose $1.20 to $27.14 on the Nasdaq, for a gain of 4.6 percent after upbeat comments on the computer maker from Merrill Lynch and Goldman Sachs.
The shares of Goldman Sachs Inc. slumped $3.36 to $99.93 after the top Wall Street firm has axed 150 investment bankers. The job cuts are part of its plans to cut its existing work force by around 5 percent, which was spelled out earlier this year.
Ford Motor Co. shed 94 cents to $25.04. Prudential Securities lowered its 12-month price target on Ford to $27 from $33, reflecting concerns over a stalled share buyback, which it said removed support for the stock. Ford took out full-page newspaper advertisements on Wednesday to present its case for replacing 13 million Firestone tires, while the tire maker stepped up its own efforts to defend its image.