Second-quarter earnings confession time is upon us. Stocks suffered Wednesday as gloomy reports from the likes of Hewlett-Packard (HWP ) and JP Morgan Chase (JPM ) weighed down the major stock indexes.
The Dow Jones Industrial Average finished down 105.60 points, or 0.94%, to 11,070.24. The Nasdaq index fell 15.92 points, or 0.71%, to 2,217.74. The broader S&P 500 index slipped 13.54 points, or 1.05%, to 1,270.03.
Analysts warn that investors will be skittish over the next few weeks as companies come clean with their earnings pre-announcements for the quarter. But most expect warnings this time around will not be as bad as those from the first-quarter warnings season. "I think the second quarter warning season will be better than the first since we've been expecting it," says Arthur Hogan, chief market analyst at Jefferies & Co. "The commentary coming out will be much less pessimistic than what we saw for the first quarter."
As summer approaches, a change in sentiment is beginning to take shape. Wall Street has begun to buy stocks on the belief that the stock market has bottomed and an economic turnaround by the end of the year is in the cards.
Don Luskin, president and CEO of MetaMarkets.com, and a portfolio manager of OpenFund (OPENX ) told S&P's AdvisorInsight that Wednesday's retreat was a reaction to Tuesday's solid gains, which were fueled by signs of hope from Xilinx and Lucent. "Companies like that are the canaries in the mine shaft," Luskin said. "People are now looking to see those canaries recover because they are the most sensitive indicators of the economy's ability to return to a growth footing."
However, confessions of worse-than-expected earnings should temper optimism and keep stocks trading in a range. So far corporate pre-warnings have been a mixed bag. Blue-chip Hewlett-Packard warned that it sees the slowdown in IT spending spreading beyond the U.S. and Europe. The company will resort to more expense reductions in hopes of meeting the current consensus expectation of $0.23 earnings per share.
Dow component JP Morgan Chase also made cautious statements. The financial services giant filed an SEC document disclosing that current weak market environment continues to negatively affect revenues.
Meanwhile some companies such as cosmetics maven Avon Products Inc. (AVP ) are actually bullish about their prospects for the second quarter.
Among other stocks in the news Wednesday, network computer maker Sun Microsystems Inc. (SUNW ) gained ground following a report from Goldman Sachs which said the worst of the pain caused by slowing demand is behind the tech giant. Last week Sun was the first high-profile company to warn of a second-quarter shortfall.
U.S. Treasuries finished mixed amid confusion over the Federal Reserve's rate-setting policy going forward.
According to a wire service report, Richmond Fed President Broaddus said in a speech Wednesday morning that the U.S. economy may be slowing more abruptly than had been expected and the Federal Reserve may need to lower interest rates in coming weeks.
European markets finished lower ahead of England's election for prime minister on Thursday. The Bank of England kept its benchmark interest rate at 5.25% today as evidence grows that the world's fourth-largest economy is picking up steam. Improving unemployment in Euroland is also on the front page Wednesday. The Financial Times-Stock Exchange 100 index ended down 21.00 points, or 0.35%, to 5,901.50. In Germany, the DAX Index lost 49.69 points, or 0.80%, to 6,192.44. In France, the CAC 40 finished off 19.78 points, or 0.36%, to 5,496.49.
In Asia, markets finished mixed. Japan's Nikkei 225 index lost 7.16 points, or 0.05%, to 13,174.84. In Hong Kong, the market added 124.14 points, or 0.92%, to 13,576.01.
By Amy Tsao in New York