Stocks drop on banks and Microsoft
Wall Street sees red, with financial and technology issues leading the decline.
NEW YORK (CNNMoney.com) -- Stocks slumped Thursday, as a management shakeup at Bank of America and Microsoft's earnings disappointment weighed on investor sentiment.
After the close, Google (GOOG, Fortune 500) reported higher sales that beat estimates and lower earnings that also beat estimates. Shares gained almost 3% in extended-hours trading.
The Dow Jones industrial average (INDU) fell 105 points, or 1.3%. The Standard & Poor's 500 (SPX) index lost almost 13 points or 1.5%. The Nasdaq composite (COMP) lost 41 points or 2.8%.
Stocks slumped Tuesday on banking woes, rallied Wednesday on IBM's earnings and bouncing bank stocks, and then sold off again for most of Thursday.
"We're back to the volatility levels we saw in November, where it's up 250 one day, down 250 the next, only it's going to feel more dramatic this time because the Dow is at 8,000," said Brian Battle, a vice president at Performance Trust Capital Partners.
Battle said that Microsoft's earnings decline and job cuts were a big negative for sentiment because it confirms that the recession is hitting a broad range of industries. Ex-Merrill Lynch CEO John Thain's departure from Bank of America was adding to nervousness about the leadership at the big banks, he said.
After rallying between late November and early January, stocks have been sliding over the last two weeks.
"The credit crunch had looked like it was thawing near the end of last year, but now that seems to have slowed down," said Tommy Williams, president of Williams Financial Advisors.
At the same time, "we knew that the fourth quarter was terrible, but the details are just now being reported," Williams said.
In such an environment, stocks are going to have a hard time breaking out of the recent range between 8,000 and 9,000, he said.
In addition to Google, General Electric is bound to be active Friday morning, after it reports quarterly results. GE (GE, Fortune 500) is expected to have earned 37 cents per share after earnings of 68 cents a year ago.
Financials: Thain will leave Bank of America amid criticism of his management of Merrill - purchased by BofA a month ago. Bank of America (BAC, Fortune 500) shares lost 14.5%.
Citigroup (C, Fortune 500) said late Wednesday that former Time Warner chairman Richard Parsons has been named its new chairman. Last week, the company announced it was splitting its business in two.
Separately, it was reported that the chief executives of Bank of America and Citigroup bought some company stock last week, according to SEC filings. This failed to reassure investors. Citigroup shares fell 15.3%.
Aflac (AFL, Fortune 500) shares fell after Morgan Stanley raised worries about its exposure to certain securities issued by hard-hit European financial firms, according to reports. Shares of the insurer lost 37%.
Regional banks have been getting hit too, with SunTrust (STI, Fortune 500), KeyCorp (KEY, Fortune 500) and Fifth Third (FITB, Fortune 500) all reporting losses Thursday.
Technology: Microsoft led the parade of technology companies issuing weak profit reports or big job-cut announcements.
Microsoft (MSFT, Fortune 500) said it will cut up to 5,000 jobs over the next 18 months due to the impact of the recession. The company also reported lower fiscal second-quarter earnings that missed estimates on higher revenue, that also missed estimates. Shares fell 11.7%.
Nokia (NOK) posted a bigger-than-expected drop in fourth-quarter sales and earnings, and warned that 2009 is looking tougher than previously thought. Shares fell 10%.
After the market close Wednesday, eBay (EBAY, Fortune 500) reported a lower fourth-quarter profit that nonetheless topped estimates. The online auctioneer also issued a current-quarter profit forecast that is short of expectations. Shares fell 12% Thursday.
Late Wednesday, Intel (INTC, Fortune 500) said it was shutting sites in Asia and scaling back U.S. operations in a restructuring move that will affect up to 6,000 people. Shares fell 3%.
Also late Wednesday, Apple (AAPL, Fortune 500) reported higher fiscal first-quarter sales and earnings that topped estimates. The tech leader also issued a fiscal second-quarter sales and earnings forecast that was short of forecasts. But investors focused on the earnings and sent shares 6.7% higher Thursday.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to one on volume of 1.56 billion shares. On the Nasdaq, decliners topped advancers by almost three to one on volume of 2.33 billion shares.
Economy: Housing starts and building permits both tumbled to record lows in December, the government reported. Permits fell 10.7% from November to an annual rate of 549,000 in December. Starts fell 15.5% from November to an annual rate of 550,000. The declines were worse than expected, according to a Briefing.com survey of economists.
Another report, from the Federal Housing Finance Agency, showed that home prices fell a record 1.8% in November from October levels.
A separate report showed that weekly claims for unemployment rose to a 26-year high last week, rising 62,000 from the previous week to 589,000. That was a bigger rise than what economists were expecting.
Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 2.59% from 2.52% Wednesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates tightened. The 3-month Libor rate increased to 1.16% from 1.12% Wednesday, according to Bloomberg.com. Overnight Libor rose to 0.21% from 0.19% Wednesday. Libor is a bank-to-bank lending rate.
Other markets: The dollar fell versus the euro and gained against the yen.
U.S. light crude oil for March delivery rose 12 cents to settle at $43.67 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $8.80 to settle at $860.50 an ounce.
Gasoline prices rose two-tenths of a cent to a national average of $1.85 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA. 
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