Stocks fell sharply for the second straight day yesterday after investors were unnerved by rising interest rates and a less-than-stellar profit report from technology bellwether Intel Corp.
The Dow Jones industrial average dropped 184.90 points, or 1.8 percent, to 10,232.16, and the Nasdaq composite index fell 71.16, or 2.5 percent, to 2801.27.
The Standard & Poor's 500-stock index, a popular vehicle for mutual funds, fell 27.49, or 2.1 percent, to 1285.55. Coupled with Tuesday's 1.7 percent loss, yesterday's slump made for the S&P 500's biggest two-day loss in more than a year.
Intel, one of the major stocks in the index, plunged 6 percent after disclosing late Tuesday that its third-quarter profit fell short of not only expectations but also its earnings in the same period a year ago. Intel, the biggest maker of computer chips, slipped 4-9/16, to 71 1/8.
The company reported a profit of $1.46 billion (42 cents a share), down from $1.56 billion (44 cents) a year ago and far short of the 57 cents to 60 cents some analysts had expected.
However, after the market closed, another closely watched technology stock--Apple Computer--reported that it had achieved its eighth straight quarterly profit, topping Wall Street forecasts that were trimmed after last month's warning about a chip shortage for the Power Mac G4.
Apple's stock had fallen 3-21/32, to 64-1/32, in advance of Wednesday's report, which was released after the close of regular trading on the Nasdaq Stock Market. But in after-hours trading, the shares rebounded to 68 1/8.
But while Intel drove down the S&P 500 and other technology stocks yesterday, analysts said other factors were behind the broader sell-off.
"I would blame interest rates," said A. Marshall Acuff, investment strategist for Salomon Smith Barney Inc.
Worries about inflation pushed interest rates on government bonds above 6.25 percent, which Acuff and other analysts consider a crucial benchmark. The value of a $1,000 30-year Treasury bond fell $6.88, to $980, while the yield--which moves in the opposite direction--rose to 6.27 percent--within 0.02 point of its highest level in two years.
Acuff said that Intel demonstrated one factor that is hurting stock prices--a lot of companies are coming up short of their profit targets. "That's one influence that makes investors a little more hesitant about putting their money to work" in stocks.
"But," he said, "the real issue is interest rates," which have driven down stock prices over the past two days and could push them substantially lower. When interest rates rise, they can erode corporate profits and also make bonds more attractive than stocks.
While the Dow has wiggled around a lot in recent weeks, it has consistently remained above the 10,100 mark, but now it could fall below that point, Acuff said.
Other analysts called it "a nervous nasty-type environment" and warned that "the market is taking no prisoners." When companies fail to meet their earnings targets they "just get taken out and shot."
That's what happened to Intel--Nasdaq's most actively traded stock yesterday--and to Abercrombie & Fitch Co.--the most active issue on the New York Stock Exchange. The retail chain's stock dropped 6-3/16, or 18 percent, to 26-5/16, after the company said October sales were disappointing.
In the Washington region, the days' biggest loser was General Dynamics, the Falls Church-based defense contractor, whose stock fell 9.32 percent--5 3/8--to 52-5/16. A big competitor, Raytheon warned that its profits are running behind expectations and analysts concluded that did not bode well for General Dynamics.