NEW YORK (CNNMoney.com) -- Stocks tumbled Wednesday after Federal Reserve Chairman Ben Bernanke told Congress that the outlook for the economy is "unusually uncertain," adding to worries about the pace of the recovery.
Stocks were slightly lower through the early afternoon as better-than-expected quarterly profit reports from Apple, Morgan Stanley and Wells Fargo were countered by disappointment about results from Yahoo and others.
But the selling picked up steam in the afternoon following the 2 p.m. ET release of Bernanke's prepared testimony for a Senate committee. The Fed chief told lawmakers that, despite ongoing signs of weakness in the economy, central bankers expect gradual recovery over the next few years, although the labor market healing will be slower than previously thought.
"He's basically saying the economy is getting worse, and that while it's still going to grow, it's not recovering at the pace they had hoped," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
Bernanke also provided more details on how the Fed plans to withdraw the trillions in stimulus it has pumped into the economy since the start of the financial crisis in 2008. But he also said that the Federal Reserve will be ready to provide additional help if the economy deteriorates.
Stocks found a little momentum Tuesday amid speculation that the Federal Reserve may take more steps to encourage bank lending. But that failed to transfer to Wednesday's trading despite a number of improved earnings.
"Right now the macro-economic environment is trumping the good earnings," Rovelli said. "The earnings have been good but people are worrying about what the next few quarters are going to look like if the recovery is losing steam."
After the close, eBay (EBAY, Fortune 500) reported higher quarterly sales and earnings that topped estimates, thanks to strength at its PayPal only payments unit. The online auctioneer also lowered the high end of its full-year 2010 profit forecast, citing the impact of the weaker euro. Shares gained 3% in after-hours trading.
But search engine operator Yahoo (YHOO, Fortune 500) reported results that disappointed investors. The Internet company reported higher earnings that beat estimates on revenue that was barely higher from a year earlier and was shy of analysts' expectations.
Citigroup downgraded the stock Wednesday, while a variety of other firms downgraded it or cut earnings estimates on the company. Shares fell 8.5%.
Dow component Coca-Cola (KO, Fortune 500) reported higher quarterly sales and earnings that topped estimates, helped by increased sales in most of its markets, with particularly strong demand overseas. Shares gained 1.6%.
Morgan Stanley reported a profit of $1.4 billion, better than expected and reversing a loss from the same quarter a year ago. The company also reported higher earnings that topped estimates.
Wells Fargo reported a higher second-quarter profit that topped expectations, thanks to smaller loan losses. Shares gained 4.7%.
US Bancorp reported higher quarterly sales and earnings that topped expectations, thanks partly to lower credit costs.
Wall Street reform: President Obama signed the Wall Street reform bill into law Wednesday, enacting the most far-reaching financial overhaul since the Great Depression.
World markets: European markets rose, with Britain's FTSE 100 up 1.5%, Germany's DAX up 0.4% and France's CAC 40 up 0.8%.
Asian markets ended mixed. Japan's Nikkei fell 0.2%, while Hong Kong's Hang Seng gained 1.1% and the Shanghai Composite gained 0.3%.
Currencies: The euro fell versus the dollar. The dollar fell versus the Japanese yen.
COMEX gold for August delivery fell $5.90 to $1,191.80 an ounce.
Bonds: Treasury prices rose, lowering the yield on the 10-year note to 2.89% from 2.93% late Wednesday. The two-year note hit a record low. Debt prices and yields move in opposite directions.
Market breadth: Breadth was negative. On the New York Stock Exchange, losers beat winners by two to one on volume of 1.2 billion shares. On the Nasdaq, decliners beat advancers by almost three to one on volume of 2.25 billion shares.
How much of a hit did you take in the recent correction? Are you worried about a bear market? What changes have you made in your portfolio and what changes do you plan on making for the rest of the year? E-mail your story to email@example.com and you could be featured in an upcoming article. For the CNNMoney.com Comment Policy, click here.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.44%||3.44%|
|15 yr fixed||2.70%||2.69%|
|30 yr refi||3.46%||3.45%|
|15 yr refi||2.74%||2.72%|
Today's featured rates:
HSBC banker arrested at JFK airport as he prepared to leave the country. He and former trader face federal charges they manipulated currency trades. More
Donald Trump loves to talk about Ronald Reagan's trade tactics against Japan. But some experts say Reagan's actions hurt U.S. jobs. More
Apple shares spiked 6% even though the tech behemoth just suffered its second-straight quarter of shrinking sales. It's a sign of how Apple faces dramatically diminished expectations these days. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
These guidelines should help you decide whether an annuity is right for you. More