After an early rally Wednesday, investors succumbed to concerns about disappointing earnings and the market ended the day with a loss. Falling consumer stocks weighed most heavily on the Dow Jones industrial average, which slid 122 points. Meanwhile, the tech-focused Nasdaq composite index showed only a moderate retreat.
Quarterly numbers from Kraft Foods Inc., Walt Disney Co. and Time Warner Inc. provided the latest reminder of the economy's struggles. The weaker-than-expected reports and a profit warning from Costco Wholesale Corp. left investors fearing that consumers are cutting back even more than most analysts thought.
"Consumer staples have enjoyed relative safety in this environment and now these new revelations are raising questions among investors," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.
Falling orders at Cisco Systems Inc. were adding to investors' anxiety. The world's largest maker of computer networking gear said after the end of trading that orders showed a sharp drop in January. Investors have been pumping money into tech stocks since the start of the year believing those companies would be less likely to see demand fall as businesses looked to cut costs with equipment upgrades.
Nasdaq 100 futures were down more than 1 percent after Cisco's report, pointing to a sharply lower open in the Nasdaq composite index on Thursday.
The market had rallied early Wednesday after a better-than-expected reading on the service sector. The Institute for Supply Management said the sector shrank in January at a slower pace than in December. Still, it was the fourth straight month that business activity in services contracted.
The trade association of purchasing executives said its index rose to 42.9 in January from a revised 40.1 in December. Analysts had expected a reading of 39, according to a survey by Thomson Reuters. The ISM's report on the manufacturing sector, issued Monday, similarly came in above expectations even as it signaled continuing weakness.
"There's so much uncertainty right now that investors are looking for any clues that the economy may be starting to stabilize and turn around," said Michael Sheldon, chief market strategist at RDM Financial Group.
Wall Street was also hoping that lawmakers in Washington would soon show further progress on a plan to help revive the economy by boosting spending and lowering taxes.
The Senate is getting closer to passing a $900 billion stimulus plan. A similar plan has already cleared the House.
"Overall, we seem to be having a tug of war between very weak economic data and the prospect of a pickup in growth later this year helped by the upcoming stimulus package and potential help for the housing and financial services industries," Sheldon said.
The Dow fell 121.70, or 1.51 percent, to 7,956.66.
Broader indicators also fell. The Standard & Poor's 500 index fell 6.28, or 0.75 percent, to 832.23, and the Nasdaq composite index fell 1.25, or 0.08 percent, to 1,515.05.
The Russell 2000 index of smaller companies fell 4.42, or 0.98 percent, to 448.48.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 5.65 billion shares, compared with 5.13 billion shares traded Tuesday.
Trading has been erratic in recent days. Investors coming off the market's worst January ever have been searching for bargains among battered stocks and looking for signs the economy might be bottoming out. The stock market jumped Tuesday. Major indexes rose more than 1 percent following better-than-expected data about pending home sales and upbeat earnings reports from companies like drugmakers.
Bond prices were mixed Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.94 percent from 2.88 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.28 percent from 0.32 percent.
On Tuesday, the three-month yield rose to its highest level since December. The increase indicated some investors were backing out of the safest parts of the market and moving into riskier but higher-yielding areas like corporate debt. Demand is still high for government debt but well off the panicked levels seen in the fall.
The Treasury Department said Wednesday it is bringing back the seven-year note and doubling the number of its 30-year bond auctions as it tries to handle a surging budget deficit projected to top $1 trillion this year.
The dollar was mixed against other major currencies. Gold prices rose.
Light, sweet crude fell 46 cents to settle at $40.32 a barrel on the New York Mercantile Exchange.
The latest corporate profit reports weighed on the market. Kraft posted a fourth-quarter profit drop of 72 percent, as revenue from the Velveeta, Oreo cookies and Maxwell House coffee businesses could not make up for high restructuring costs. The stock fell $2.63, or 9.2 percent, to $26.11.
The media industry turned in several downbeat reports as well. Disney said late Tuesday its quarterly earnings fell 32 percent. Time Warner reported a fourth-quarter loss of $16 billion after the conglomerate wrote down the value of its cable, publishing and AOL assets.
Disney fell $1.62, or 7.9 percent, to $19, while Time Warner fell 36 cents, or 3.7 percent, to $9.42.
Costco slid $3.14, or 6.8 percent, to $42.98 after reporting that its January sales fell and after the wholesale club chain warned that its second-quarter results would fall well short of Wall Street's expectations.
Bank stocks fell again as investors worried about what might come from the government's plans to help prop up banks. Investors are worried the steps could hurt shareholders by diluting the value of their stock.
Bank of America Corp. shares fell 60 cents, or 11 percent, to $4.70. Part of Bank of America's decline came as its shares fell below $5. That triggered selling from some mutual funds prohibited from holding stocks that slip below $5.
Cisco, which rose 22 cents to $15.84 during the regular session, fell sharply in after-hours trading to $15.18.