Stocks ended Tuesday's session with sharp losses as optimism arising from some rosy corporate and economic news gave way to continuing concern about a profits rebound as the second quarter earnings reporting season approaches.
The Dow Jones industrial average finished down 155.13 points, or 1.67%, to 9,126.69. The Nasdaq composite index fell 36.34 points, or 2.49%, to 1,424.00. The Standard & Poor's 500 index dropped 16.45 points, or 1.66%, to 976.27.
A recent spate of strong data are expected to lead the Federal Reserve to leave interest rates unchanged at the end of its two-day policy meeting, which began Tuesday. While another terse statement is the most likely outcome on Wednesday, any changes to the more or less canned announcement could offer valuable hints on Fed thinking, notes S&P MMS. As usual, there will be considerable interest in the wording of the Fed's policy statement.
On Wednesday, investors will have a pile of other economic reports to digest early in the session. Among them are orders for big ticket items in May as well as new home sales for that month. Durable goods orders are expected to decrease 2%, vs. a 3.7% rise in the previous month, according to MMS.
New home sales, meanwhile, are seen increasing to an annual rate of 920,000 from 915,000 in April.
Few big name companies are scheduled to report results on Wednesday. Among the companies expected to report earnings are kitchen cabinet company American Woodmark (AMWD ) and women's apparel company Coldwater Creek (CWTR ).
On Tuesday, tech companies in particular were under scrutiny as they are often looked to for market leadership. Tape data storage maker Quantum (DSS ) warned its loss could be double its earlier forecast and revenue would fall short in its quarter that ends in June.
Earlier, a rally had been sparked by economic news including a report that consumer confidence had fallen by a less than expected amount in May. The Conference Board said the index of consumer optimism about the future fell to 106.4 in June from 109.8 in May. The report suggested that while the economy has seen a strong inventory-led rebound, labor market conditions remain at relatively depressed levels, MMS says.
Keeping a lid on the Dow's losses, however, was some favorable corporate news. Chemical giant DuPont (DD ), a Dow component, raised its profit guidance for the second quarter, citing higher sales across most of its business segments.
Among other companies releasing earnings on Tuesday, express delivery concern FedEx (FDX ) posted quarterly profits that more than doubled compared with a year ago amid gains in ground deliveries.
Kroger (KR ), the largest U.S. grocery chain, posted 19% higher first quarter profit, maninly on cost savings.
Rite Aid (RAD ), the No. 3 drugstore chain, posted a profit for the first time in four years, thanks in part to higher revenue and asset sales.
In other economic news released Tuesday, U.S. existing home sales slid 0.3% to a 5.75 million unit annualized rate in May from a 5.79 million pace in April, but the number still managed to come in above median expectations of a 5.65 million unit rate. Lower mortgage rates, economic recovery, the nesting trend and diversification from stocks are still keeping home sales brisk despite this setback.
Treasuries ended with modest gains, with shorter-dated notes outperforming after the U.S. Treasury officially delayed the 2-year note auction. That announcement, combined with the late bludgeoning of stocks, helped prices recover at the front-end and beat yields lower once again.
Glenn Hubbard, economic adviser to President Bush, said the U.S. economic recovery is underway, though he is less confident about growth overseas. He explains the equity market drops as "partly reflecting corporate governance concerns."
European markets ended higher.
In London, the Financial Times-Stock Exchange 100 index finished up 89.10 points, or 1.96%, to 4,631.00 in a rebound sparked by New York's late rally yesterday.
France's CAC 40 ended higher by 97.16 points, or 2.65%, to 3,766.40 in a short covering rebound even though French housing starts fell 5.4% in 3 months through May.
Germany's DAX index finished up 75.76 points, or 1.84%, to 4,202.97 even though the Ifo June business sentiment index unexpectedly fell to 91.3 from 91.6. Some investors were encouraged that German producer prices were unchanged in May from April.
Asia markets finished mixed. In Japan, the Nikkei 225 index finished up 25.35 points, or 0.24%, to close at 10,496.67 as market heavy-weight telecom and exporter shares gained momentum in the afternoon session on the back of buy-backs in stock index futures.
In Hong Kong, the benchmark Hang Seng index ended down 48.36 points, or 0.45%, to close at 10,608.98.