NEW YORK – Wall Street ended the session in negative territory Wednesday after investors paid closer attention to mixed earnings reports and tech sector weakness after earlier rallying on Microsoft's $75 billion buyback plan.
The Dow Jones industrial average tumbled 102.94 points, or 1.02 percent, to close at 10,046.13. The Nasdaq Composite Index lost 42.70 points, or 2.28 percent, at 1,874.37, while the broader Standard & Poor's 500 ended lower 14.79 points, or 1.35 percent, at 1,093.88.
It was the lowest close for the Nasdaq since Oct. 24 and its biggest percentage loss since March 15. It was the worst performance for the Dow and the S&P since May.
Trading was heavy, with about 1.7 billion shares traded on the New York Stock Exchange and 2.1 billion shares on Nasdaq.
Earlier in the session, stocks soared on news from Microsoft Corp. (MSFT). The firm, which generates about $1 billion in cash per month, said after Tuesday's close it planned to buy its own stock, double its dividend and issue a special one-time dividend. The company added it will still have sufficient funding for research and to make acquisitions, while it distributes the cash over the next four years.
Microsoft shares gained 54 cents to end at $28.86, after climbing as high as $29.89. About 188 million Microsoft shares changed hands on the Nasdaq, surpassing the 30-day average daily volume of 71.5 million shares.
Trading became somewhat subdued in the late morning as Federal Reserve (search) Chairman Alan Greenspan (search) testified about the state of the economy before Congress, though his assessment was mostly bullish.
Even though most companies have matched or beaten earnings expectations in recent weeks, investors have been reluctant to make commitments because of less-than-stellar outlooks. Analysts say slowing profits, lower consumer spending and uncertainty about inflation, terrorism and the presidential election could combine for a lackluster third quarter.
"The problem is that so many people are expecting that technology performance can't go up from here," said Brian Pears, head of equity trading at Victory Capital Management. He said the sector's strength in the second half of 2003 will make year-over-year improvement in the months ahead difficult.
Underscoring the sensitivity to outlooks, a drop in orders at Texas Instruments Inc. (TXN) — which matched estimates in earnings reported after the close Tuesday — raised anxiety about the prospects for chip stocks, and the Philadelphia Semiconductor Index sank 3.7 percent. Because semiconductors are used in virtually all tech products, any weakness in that industry is seen as spelling trouble for the other parts of the sector.
Texas Instruments, which makes chips for more than half the world's mobile phones, was down $1.13. or 5.2 percent, at $20.63, even though it tripled its profits over the same period a year ago and reported rising demand for its products.
Cellular phone company Nextel Communications Inc. (NXTL) also helped pull the Nasdaq lower as investors worried the company's tax rate would increase this year, analysts said. Disappointing earnings from genetic research company Invitrogen Corp. (IVGN) and software developer Mercury Interactive Corp. (MERQ), also weighed on the Nasdaq.
Worries about Nextel's tax rate overshadowed the company's higher second-quarter profit, pulling the stock down $1.54, or 6 percent, to $24.46.
Mercury Interactive, whose software helps companies test and improve technology, posted lower quarterly earnings and forecast that profit for the current quarter could be lower than what Wall Street expected. It fell $4.80, or 11 percent, to $37.93.
Invitrogen lowered its revenue outlook due to increased competition, sending its shares plummeting, as the maker of kits for genetic research posted a higher quarterly profit. It was down $14.99, or 23 percent, to $51.16.
United Technologies Corp. (UTX) gave a lift to the blue-chip Dow after posting a 32 percent rise in quarterly earnings. Shares of United Tech, whose businesses range from heating and air conditioning to aerospace equipment, rose $2.10 to $92.67 on the New York Stock Exchange after it posted higher earnings, making it the biggest contributor to the Dow's rise.
No. 2 U.S. bank J.P. Morgan Chase & Co. (JPM), which recently purchased Bank One, also boosted the Dow. The company reported a quarterly loss after setting aside an additional $2.3 billion for legal costs, but an analyst said the company's stock got a boost on relief that the loss was not larger. J.P. Morgan said it earned 85 cents a share, excluding the litigation charge and merger costs, which beat Wall Street estimates. Its shares were up 42 cents to $36.82.
In other corporate news, Eastman Kodak Co. (EK), the world's top maker of photographic film, on Wednesday said its second-quarter profit beat expectations, excluding one-time costs, driven by gains in its digital photography business, and announced it would cut up to 1,300 additional jobs. Eastman Kodak was trading higher $2.25, or 9.07 percent, at $27.05.
Declining issues outnumbered advancers more 3 to 1 on the New York Stock Exchange. Volume was moderate. Preliminary volume came to 2.07 billion shares traded, compared to 1.76 billion on Tuesday.
The Russell 2000 index, which tracks smaller company stocks, plummeted 15.62, or 2.8 percent, to 548.57.
Overseas, Japan's Nikkei stock average finished 1.6 percent higher Wednesday. In Europe, France's CAC-40 closed up 0.8 percent, Britain's FTSE 100 added 0.9 percent and Germany's DAX index advanced 1 percent.
Reuters and The Associated Press contributed to this report.