NEW YORK (CNN/Money) -
U.S. stocks fell Wednesday as profit takers pounced on any signs of weakness in the day's earnings and forecasts.
The earnings parade continued after the bell, with better-than-expected reports from Foundry Networks (FDRY: down $0.84 to $23.06, Research, Estimates), Flextronics (FLEX: down $0.60 to $15.02, Research, Estimates), KLA-Tencor (KLAC: down $1.95 to $58.05, Research, Estimates) and Veritas Software (VRTS: down $1.35 to $33.94, Research, Estimates).
But the biggest report of the week is Microsoft (MSFT: down $0.46 to $28.89, Research, Estimates), due after the close of trade Thursday.
"Microsoft tomorrow is the most significant earnings report this week," said Robert Long, vice president of investments at Melhado, Flynn & Associates. "Everyone knows management's usually fairly cautious, so if they say something really good, that could help things a lot."
For more details on Microsoft's earnings, click here.
Due out before the open Thursday: earnings from PeopleSoft (PSFT: up $0.08 to $20.81, Research, Estimates), Reebok (RBK: down $0.09 to $37.24, Research, Estimates), Sprint FON (FON: unchanged at $15.74, Research, Estimates) and PCS (PCS: down $0.13 to $5.32, Research, Estimates), among others.
All three major indexes posted significant losses, with the Nasdaq composite (down 42.83 to 1898.07, Charts) losing 2.2 percent, and the Standard & Poor's 500 (down 15.67 to 1030.36, Charts) index and the Dow Jones industrial average (down 149.40 to 9598.24, Charts) losing about 1.5 percent each.
Amazon.com and J.P. Morgan Chase both reported improved earnings that topped estimates, but with expectations so high for a profit recovery, even the good news was insufficient to extend the recent rally, analysts said. Meanwhile, companies that reported quarterly weakness, such as Merck, saw their stocks knocked sharply lower.
"There are some genuinely problematic reports out today, like Merck, but there's a lot of good stuff, too, and people are taking some pretty decent earnings and focusing on the negative," Long added.
Year-to-date as of Tuesday's close, the Nasdaq was up 45.3 percent, the S&P 500 was up 17.3 percent, and the Dow was up 16.9 percent, leaving the major indexes vulnerable to some profit taking Wednesday, analysts said.
"I think traders are quick to take profits right now, because what else is there that stocks can do for an encore in the short term?" said Peter Green, a market analyst at MKM Partners. "We're still in an uptrend, but the probability right now, from a technical standpoint, is that we're going to have a little more selling."
Selling may also have been accelerated Wednesday by an early afternoon decision by the Senate to refuse to consider a bill aimed at limiting class action lawsuits. The decision was seen as a major negative for Corporate America.
What's moving?
Amazon.com (AMZN: down $5.32 to $54.03, Research, Estimates) reported earnings of 11 cents a share late Tuesday, a penny more than expected and up from breakeven results a year earlier.
Looking forward, the world's biggest Internet retailer said revenue for its current quarter will top expectations, and 2004 revenue will be mostly in line with estimates. But since the stock has more than tripled its value this year, analysts said some investors were hoping for a more aggressive forecast to justify the runup. Amazon's shares fell 9 percent.
Dow component Merck (MRK: down $3.19 to $45.72, Research, Estimates) led a list of mixed to weak results and forecasts from the drug sector. The company reported earnings per share and revenue in the latest quarter that missed expectations, announced 4,400 job cuts, and cut its guidance for the full year. Its stock shed nearly 6.5 percent.
Fellow Dow stock J.P. Morgan Chase (JPM: down $1.69 to $34.98, Research, Estimates) reported quarterly earnings that rose from a year earlier and beat expectations, as a result of higher fees from investment banking and lower credit costs. But with shares trading near a one-year high, investors used the news as an excuse to take profits. The stock tumbled 4.5 percent.
Another Dow component, DuPont (DD: down $1.75 to $39.20, Research, Estimates), reported earnings that slightly topped analysts' estimates but fell sharply from a year earlier, due to the impact of higher energy costs and a significant charge. The stock lost 4.3 percent.
Amgen (AMGN: down $3.35 to $60.30, Research, Estimates) led the biotechs lower, with its stock sinking 5 percent, even though the company reported earnings late Tuesday that topped expectations and rose from a year earlier. On Wednesday, Morgan Stanley downgraded the stock to "equal weight" from "overweight."
A 24.5 percent plunge in the shares of Seagate Technology (STX: down $7.22 to $22.28, Research, Estimates) knocked a number of data storage and hardware issues lower on the New York Stock Exchange. Seagate reported stronger-than-expected fiscal first-quarter earnings but issued a second-quarter forecast that was lower on a revenue basis than what analysts were expecting.
The leading maker of computer hard-disk drives also said that U.S. regulators have asked the company to provide copies of all analyst reports for the last two-and-a-half years.
The stock was the NYSE's second most-active and sent rivals Maxtor (MXO: down $2.60 to $12.70, Research, Estimates) down 17 percent and Western Digital (WDC: down $1.97 to $12.30, Research, Estimates) down 13.8 percent.
On the upside, shares of Lucent Technologies (LU: up $0.33 to $2.78, Research, Estimates) rallied 13.5 percent in active NYSE trade after the telecommunications company reported its first quarterly profit in almost three years, thanks to aggressive cost-cutting.
Market breadth was sharply negative throughout the session. On the New York Stock Exchange, where 1.61 billion shares traded, declining issues outnumbered advancers by more than eleven to five. On the Nasdaq, losers beat gainers by almost three to one as 1.69 billion shares changed hands.
Treasury prices rallied on the weakness in the stock market, sending the 10-year note yield down to 4.25 percent from 4.34 percent late Tuesday. The dollar fell versus the yen and the euro.
NYMEX light sweet crude oil futures fell 40 cents to settle at $29.92 a barrel. COMEX gold gained $4.80 to settle at $386.80 an ounce.
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