Stocks Hurt by Earnings Disappointment

NEW YORK – Stocks fell Tuesday, weighed down by a batch of disappointing start to the earnings season, after aluminum producer Alcoa (AA) missed Wall Street expectations and chip maker Advanced Micro Devices (AMD) issued a sales warning.

The Dow Jones industrial average (search) closed down 64.81 points, or 0.61 percent, at 10,556.22. The Standard & Poor's 500 Index (search) was down 7.26 points, or 0.61 percent, at 1,182.99. The Nasdaq Composite Index (search) fell 17.42 points, or 0.83 percent, to 2,079.62.

However, after the market closed, tech bellwether Intel Corp. (INTC) rose 3 percent to $23.17, after it reported higher-than-expected revenue and profits for the last quarter.

"I think it's exceptional across the board," said Stephen Leeb, president Leeb Capital Management in New York, who has $110 million assets under management, including Intel.

"Revenue was better than expected. The number that strikes me is that they are projecting 2005 gross margin of 58 percent, and I don't think anyone was near that. It's a terrific report. Intel is clearly the bellwether, and this report could easily turn the tech sector," Leeb said.

Hewlett-Packard Co. (HPQ) dragged on the Dow and the S&P 500, tumbling 3.6 percent, or 76 cents to $20.05, after Morgan Stanley lowered its investment rating on the computer maker to "underweight" from "equal weight."

"There's a sense that nobody wants to buy right now. It's earnings week, the numbers have been choppy at best ... I think people are just waiting to see how things shape up," said Michael Murphy, head trader at Wachovia Securities in Baltimore. "I'm not seeing a lot of selling, it's more a case where people have their wallets on their hip. There's no urgency."

Despite the losses, analysts weren't overly alarmed by the day's trading, or the fact that the major indexes are all down for the year — traditionally a negative indicator for Wall Street. Market fundamentals remain strong, and there have been enough exceptions to January's so-called "early warning" system that it's reasonable to question its accuracy, said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla.

"I think the jury is still out as far as which way this thing is going to go. We think the correction has further to run, how far I have no idea," Dickson said. "But once this correction runs its course, we think then the market runs higher again. We're positive for the market on the year."

The fact that investors apparently have factored so much bad news into stocks so early in the earnings season may work in the market's favor, Dickson added. "There seems to me to be mostly room for surprise to the upside," he said.

Oil prices closed slightly higher. NYMEX (search) crude for February delivery settled 35 cents higher at $45.68 a barrel, although off its session high of $46.15. Higher oil prices generally dampen equities because of the impact on corporate profits and consumer spending.

AMD's warning late Monday that its fourth-quarter revenue would fall below Wall Street's expectations provided an ominous sign before tech titan Intel reports its earnings late Tuesday. Disappointing reports from Alcoa Inc. (AA) and Genentech Inc. (DNA) — the first two major companies to release earnings this season — added to investors' worries.

AMD said its revenues would be up slightly from the $1.24 billion in last year's fourth quarter. Wall Street had expected sales of $1.35 billion, leading analysts at Lehman Brothers and Piper Jaffray to cut their ratings on AMD, which sank 26 percent, or $5.27, to $14.86.

Also on the Dow, leading aluminum producer Alcoa (AA) declined 82 cents to $29.65 after missing Wall Street profit forecasts by 2 cents per share. The company blamed higher commodity prices and the weak dollar for an 8 percent drop in net income.

Genentech (DNA) slumped 6.8 percent, or $3.73, to $50.70, after reporting profits that missed analysts' estimates by a penny per share. Investors were disappointed with sales of the company's cancer drug Avastin, which fell short of forecasts.

Technology consulting firm Unisys Corp. (UIS) tumbled 56 cents to $8.75 after slashing its profit forecast for the fourth quarter. The company now expects a loss of 7 to 10 cents per share, compared with earlier forecasts for profits of 27 cents to 31 cents per share. Management blamed one-time charges related to an outsourcing operation.

Trading was active, with 1.4 billion shares changing hands on the New York Stock Exchange, just below the 1.46 billion daily average for last year. About 2.19 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year. Decliners outnumbered advancers on the New York Stock Exchange by about 2-to-1 and by about 7-to-3 on Nasdaq.

The Russell 2000 index of smaller companies was down 6.21, or 1.01 percent, at 611.53.

Overseas, Japan's Nikkei stock average rose 0.93 percent. In Europe, Britain's FTSE 100 closed down 0.45 percent, France's CAC-40 lost 0.74 percent and Germany's DAX index declined 1.15 percent.

Reuters and the Associated Press contributed to this report.