NEW YORK (CNN/Money) -
U.S. stocks tumbled Wednesday as worries about energy costs after OPEC cut its crude oil production target gave investors an incentive to take profits in technology after the recent rally.
All three major indexes closed sharply lower. The Nasdaq composite (down 58.02 to 1843.70, Charts) lost 3 percent, the Standard & Poor's 500 (down 19.65 to 1009.38, Charts) index lost 1.9 percent, and the Dow Jones industrial average (down 150.53 to 9425.51, Charts) lost 1.6 percent.
Technology stocks led a rally Tuesday, and they led the declines Wednesday as investors opted to take some profits. But the market may have been set for some choppy trade anyway, due to the week's lack of news, particularly on the economy. The day's selling was likely a bout of profit taking after the recent rally. Monday's reason for a selloff was the weak dollar.
"The market is schizo and drifting right now. We're in this sideways period where there isn't a lot out there to influence direction," said Douglas Altabef, managing director at Matrix Asset Advisors.
As such, what negative news there was proved to be sufficient to send stocks lower, in this case, OPEC's output cut and a warning from Viacom, an anomaly in what has otherwise been a light period of earnings warnings.
After the close of trade, Bed, Bath & Beyond (BBBY: down $0.77 to $39.42, Research, Estimates) reported earnings per share of 32 cents, 2 cents better than analysts surveyed by First Call were expecting and up from the 25 cents it earned a year earlier.
Also after the bell, Micron Technology (MU: down $0.57 to $14.10, Research, Estimates) reported a fourth-quarter loss of 20 cents per share, narrower than its year-earlier loss and 5 cents narrower than the loss expected by analysts polled by Reuters Research.
Thursday's trade will likely be determined by the slew of economic news expected. The weekly jobless claims report, released before the opening bell, is forecast to show new claims at 400,000 last week, virtually unchanged from the reading of 399,000 the preceding week, according to estimates from Reuters Research.
At around the same time, the August reading on durable goods orders will be released. It's forecast to show a rise of 0.5 percent after rising 1.0 percent in July.
After trading begins, reports on new and existing home sales in August are expected. Existing home sales are expected to have fallen to an annual rate of 6.05 million units from 6.12 million units in July. New home sales are thought to have fallen to a 1.12 million unit annual rate from a 1.165 million unit annual rate in July.
The housing market has been strong for some time, and investors will be looking to see that the strength is being sustained.
Optimism that the economic recovery is under way and that third-quarter earnings will be strong have propelled stocks for months, particularly in the last few weeks. But the rally has also made some market watchers worry that stocks have run too far, too fast. At the same time, with few negatives, there has been little incentive to sell, all of which has left stocks somewhat rangebound throughout September.
After a surprisingly strong first week, the market has spent the rest of September bobbing to and fro. As of Wednesday's close, the three major indexes are trading just fractionally higher than where they closed at the end of August.
But even flat trading in September is a positive, as it would seem to defy historic trends, in which stocks have fallen sharply, particularly during the last three years.
Wednesday's market
The surprise news Wednesday came from the Organization of Petroleum Exporting Countries, which announced that it will cut oil output by 900,000 barrels a day for 10 member countries, excluding Iraq. The OPEC announcement unnerved investors, as the drop in output is likely to boost energy costs for oil-importing countries like the United States. If energy costs climb again, as they did before the Iraq war, the concern is that this might put a cap on consumer spending and slow the broader economic recovery.
NYMEX light sweet crude oil futures for November delivery rallied $1.11 to settle at $28.24 a barrel. Oil stocks were mixed.
Viacom (VIA.B: down $1.44 to $38.83, Research, Estimates) warned that 2003 earnings and revenue won't meet expectations as a result of sluggish advertising sales. Shares dropped 3.6 percent.
Cisco Systems (CSCO: down $0.83 to $20.32, Research, Estimates) tumbled 3.9 percent and topped the Nasdaq's most-actives list after the company said its board expanded its stock buyback program to $20 billion from an earlier $13 billion.
The selloff was a surprise, as the news was expected to give a lift to the technology sector today. Generally, stock buyback programs are a sign of a company management's belief that the shares are undervalued, as well as a signal of corporate confidence. In light of this, the Cisco announcement still was encouraging for technology investors looking for signs that the sector is recovering, in tune with a broader economic recovery.
Other major technology issues also saw their shares decline, including Microsoft (MSFT: down $1.14 to $28.46, Research, Estimates), which lost 3.9 percent, and Oracle (ORCL: down $0.43 to $11.60, Research, Estimates), which lost 3.6 percent.
"You've got a lot of factors here all coming into play," said Tim Heekin, head of stock trading at Thomas Weisel Partners. "Oil is having a negative impact and the pre-announcement news from Viacom was significant. You also had all the banks reporting strong earnings yesterday, but yet they're selling them off two days in a row, and we're near the end of the quarter and you've got portfolio managers wanting to cash out of the rally's recent leaders."
Market breadth was negative, with losers outnumbering gainers by almost two to one on the NYSE, where 1.54 billion shares traded, and by 11 to five on the Nasdaq, where 2.17 billion shares changed hands.
COMEX gold for December delivery rose $1.40 to settle at $388.40 an ounce.
As stock prices fell, Treasury prices rose. The yield on the 10-year note fell to 4.13 percent from 4.20 percent late Tuesday, as its price gained 19/32 of a point.
Although no longer pressuring stocks, concerns about the weak dollar persisted following the greenback's steep selloff against the yen earlier in the week. The dollar fell versus the yen, but held above the three-year low set Tuesday. The dollar also fell versus the euro.
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