Stocks drop in another volatile session on Microsoft earnings, cuts

NEW YORK -- Wall Street has again succumbed to a disheartening reality — the recession is taking a heavy toll on U.S. companies.

Stocks closed sharply lower Thursday on more bad news about earnings and ever-increasing worries about the banking industry. The major indexes, which plunged and then soared the first two trading days of the week, ratcheted up and down during the course of the session; the Dow Jones industrial average fell as much 271 points, came close to breaking even and then slumped before closing down 105.

"We're seeing a little bit of increase in volatility because things have not gotten much better," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group.

Microsoft set the tone for the day and made clear more pain was to come before an elusive economic recovery would emerge. The company surprised investors Thursday morning by reporting its fiscal second-quarter earnings early — and the news was not good. The software giant posted an 11% drop in profit and said it will slash 5,000 jobs over the next 18 months.

Microsoft said deteriorating global economic conditions and lower revenue from PC software forced it to cut back. The company also said it is unable to provide any profit and revenue forecasts for the rest of the year because of the market volatility.

Uneasiness about financial companies still plagues investors, and many bank stocks took another beating Thursday. Quarterly financial reports showing steep profit declines and big loan losses have investors worried that the financial crisis is far from over, and that the government's efforts to prop up banks might not be enough to prevent a major failure.

Bank of America said former Merrill Lynch CEO John Thain resigned after a meeting of Bank of America executives Thursday morning. The company didn't offer a reason for Thain's departure, but it follows news that Merrill Lynch had moved up its year-end bonuses, handing out payments just days before it was officially acquired by Bank of America on Jan. 1. Moreover, some analysts expected that Thain would leave; it's almost inevitable that in the marriage of two big companies, one of the former CEOs leaves soon after the deal is closed. Bank of America fell 15%.