Stocks retreated Thursday as Wall Street took a breather from this week's recent rally, sobered a bit by mixed earnings reports, a tumbling dollar and surging oil prices.
According to preliminary calculations, the Dow slipped 48.86, or 0.35 percent, to 13,766.70.
Broader stock indexes also declined. The Standard & Poor's 500 index fell 10.28, or 0.67 percent, to 1,518.75, and the technology-dominated Nasdaq composite index fell 12.19, or 0.46 percent, to 2,654.29.
Wall Street had driven the Dow Jones industrials up more than 400 points in the two days following the Fed's half-point rate reduction, so it was to be expected that investors would eventually stop to cash in gains.
So when a few major companies, particularly Bear Stearns & Cos. (BSC) and Circuit City (CC), posted wider-than-expected drops in third-quarter profit Thursday, Wall Street's giddiness following the Fed's rate cut waned, and nervousness resurfaced about how long it might take for the economy and corporate America to rebound from the recent market turmoil.
"Historically, after the Fed eases, the market takes about a month to figure out whether the easing was a good thing or a bad thing," said Brian Gendreau, investment strategist for ING Investment Management.
Although the credit markets are improving, traders remain worried about the economy dipping into recession and unsure of where to put their money, Gendreau said. "Now that the crisis is abating, the question is, what are we going to do next?"
Wall Street did get some good news Thursday. The Labor Department said jobless claims declined by 9,000 last week, despite August's decrease in payrolls, and Goldman Sachs Group Inc. (GS) reported a surprisingly large 79 percent profit rise in the third quarter. In August, stocks plunged and credit markets tightened up due largely to housing market troubles.
But Bear Stearns & Cos. didn't weather the market turmoil as well, and suffered a larger-than-anticipated 62 percent profit drop. Electronics retailer Circuit City Stores Inc. also posted a big quarterly loss that troubled Wall Street, sending its shares tumbling. Meanwhile, the euro fell to another record low against the euro and crude oil prices surged to a new all-time high above $83 a barrel.
The Russell 2000 index of smaller companies fell 7.64, or 0.93 percent, to 809.76.
Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange, where volume came to 1.27 billion shares, down from 1.67 billion on Wednesday.
Bonds plummeted, pushing the yield on the benchmark 10-year Treasury note up to 4.67 percent from 4.52 percent late Wednesday. Prices fell due to concerns that U.S. rate cuts will spur inflation and that the falling dollar might cause Saudi Arabia to unload their Treasury holdings.
Like its earnings data, Thursday's economic reports were mixed. The Conference Board said its August index of leading economic indicators declined, but the Philadelphia Fed reported a solid rebound in its region's manufacturing in September.
Meanwhile, Fed Chairman Ben Bernanke's testimony Thursday about the mortgage and credit markets before the House Financial Services Committee offered few hints about the central bank's next move. Bernanke said the credit crisis has created "significant market stress" and reassured the market that regulators are willing to step in to curb the fallout.
Wall Street is split over what the Fed will do when it meets again in October. Many predict a quarter-point rate decrease, but others expect the target fed funds rate to hold at 4.75 percent.
The main reason the central bank may be against another rate cut is the risk of inflation. Core inflation, which strips out food and energy prices, has been stable in recent months, but could accelerate if the effects of high food and energy prices trickle down to other consumer prices.
"The one thing we're going to be susceptible to is data shocks, especially on the inflation front," said Doug Roberts, chief investment strategist for Channel Capital Research.
Crude oil prices rose further into record territory on the New York Mercantile Exchange to settle at $83.32 a barrel. Gold also extended its recent streak.
Meanwhile, the euro surpassed $1.40 for the first time since the 13-nation currency was introduced in 1999. A weak dollar is a double-edged sword for the U.S. economy -- it makes imports more expensive, but it makes U.S. exports cheaper, and thus more attractive, to foreign buyers.
Circuit City plunged $1.90, or 18 percent, to $8.67 after its weak earnings, and Goldman dipped $1.97 to $203.53 despite its strong profit.
Bear Stearns shares fell 18 cents to $115.46. Bear Stearns' stock has been battered in recent months. Over the summer, two of its hedge funds that bet on mortgage debt went bankrupt, and the news led to a selloff in its own stock and throughout the industry.
In deal-making news, Nasdaq Stock Market Inc. and Borse Dubai announced that Nasdaq will take over Nordic bourse operator OMX AB, while Borse Dubai will buy about 20 percent of Nasdaq and 28 percent of the London stock exchange. Nasdaq rose 49 cents to $36.51.
In European trading, Britain's FTSE 100 fell 0.48 percent, Germany's DAX index fell 0.20 percent, and France's CAC-40 fell 0.73 percent.
In Asia, Japan's Nikkei index rose 0.20 percent and Hong Kong's Hang Seng Index rose 0.57 percent.