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NEW YORK (CNN/Money) -
Stocks slid Tuesday, breaking a two-session rally, after Dell warned about its earnings and the Federal Reserve boosted a key short-term interest rate, as expected, and signaled it would continue hiking rates for the time being.
As of 6 p.m. ET, Nasdaq and S&P futures pointed to a mostly flat open for stocks, when fair value is taken into account.
The Dow Jones industrial average (down 33.30 to 10,406.77, Charts), the S&P 500 (down 4.25 to 1,202.76, Charts) index and the Nasdaq composite (down 6.25 to 2,114.05, Charts) all slipped around 0.3 percent.
Treasury prices fell, raising the corresponding yields, while the dollar was mixed versus other major currencies.
The major gauges fell through the early afternoon as a profit warning from Dell provided investors with an incentive to bail out of stocks after two strong sessions.
Stocks briefly tried to recover after the Fed announcement at roughly 2:20 p.m. ET, but they failed to find momentum, returning to pre-Fed levels.
Heading into today’s Fed meeting, “investors were looking for any signs that the Fed’s rate tightening cycle might be nearing an end,” said Michael Sheldon, chief market analyst at Spencer Clarke. “Unfortunately, they didn't get that at all.”
However, the day’s news from the Fed was not much of a surprise and had only a minimal impact on stocks Tuesday. The selloff was particularly modest in that it followed a two-day rally.
"The market tone has improved over the last week or so," Sheldon said. "We've seen better volume and market internals, which is encouraging, but there are still a lot of headwinds.
In the very short term, investors will be attuned to Friday’s October payrolls report, Sheldon noted. Longer term, the focus will continue to be on the economic news, energy prices and core inflation.
Wednesday’s one economic report of note is the weekly oil inventories report, due out at around 10:30 a.m. ET.
Earnings reports are due Wednesday morning from Duke Energy (Research) and Time Warner (Research).
After the close Tuesday, Sun Microsystems (Research) reported a narrower net loss versus a year ago that was in line with analysts’ forecasts. Shares inched lower in extended-hours trading.
Also after the close, Symantec (Research) reported higher quarterly earnings -- excluding charges -- that rose from a year ago. The security software maker also warned that current-quarter earnings and revenue would miss forecasts. Shares slipped in extended-hours trading.
Fed boosts rates, as expected
Fed policy makers voted to boost the Fed funds rate -- an overnight bank lending rate -- by a quarter percentage point to 4 percent, as was expected. It marked the 12th hike in a row since the central bankers began their rate-hiking campaign in June 2004.
In the statement, the Fed acknowledged that higher energy prices and two massive hurricanes have hit the economy and increased inflation for the short-term. However, longer term, the economy remains strong and should benefit from hurricane-related rebuilding in the affected areas, the bankers said. Long-term inflation remains contained, the statement said, and core inflation hasn't budged much.
As such, the Fed vowed to continue raising rates at a pace that is “likely to be measured.” (To read the full statement, click here.)
“It’s as plain vanilla as it possibly could have been,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. “Basically, the message was ‘we're going to keep raising rates for the foreseeable future.’”
Treasury prices showed only a modest reaction to the announcement, with the yield on the 10-year note rising to 4.57 percent from 4.55 percent late Monday. Treasury prices and yields move in opposite directions.
The dollar was lower versus the euro and higher versus the yen.
What moved?
Dell (down $2.64 to $29.24, Research) warned late Monday that third-quarter earnings would come in at the lower end of its previous forecast, due to weaker U.S. and U.K. personal computer sales. Shares slumped 8.3 percent.
Among the tech stocks reacting to Dell’s announcement, Intel (down $0.85 to $22.65, Research) slumped 3.6 percent. Dell is Intel’s biggest customer.
Other chip stocks slid, too, pressuring the Philadelphia Semiconductor (down 4.10 to 428.54, Charts) index, or the SOX.
Shares of Nabi Biopharmaceuticals (down $9.22 to $3.63, Research) tumbled nearly 72 percent in unusually active Nasdaq trade after a late-stage study of its staph vaccine failed to produce expected results. The failure caused the company to halt work on a similar second staph vaccine.
Take Two Interactive Software (down $3.12 to $17.53, Research) slumped more than 15 percent after cutting fiscal 2005 and 2006 earnings forecasts, due to delays in the launch of a popular video game title and other setbacks.
Automakers General Motors (down $0.21 to $27.19, Research) and Ford (down $0.10 to $8.22, Research) both slipped after reporting that October sales slumped 23 percent, as high gas prices cut into SUV sales.
Procter & Gamble (down $0.74 to $55.25, Research) reported quarterly earnings that rose from a year earlier and topped forecasts. However the Dow component's stock fell.
Rival Colgate Palmolive (down $0.60 to $52.36, Research) also reported higher quarterly earnings that were in line with analysts' forecasts. Shares lost more than 1 percent.
On the upside, Internet shares gained after IAC/InterActiveCorp (up $0.52 to $26.12, Research) posted higher-than-expected earnings, thanks in part to its purchase of search engine AskJeeves.
Other search engines gained, including Yahoo! (up $0.75 to $37.72, Research) and Google (up $7.24 to $379.38, Research).
Dow component McDonald's (up $0.17 to $31.77, Research) inched higher after its CEO said late Monday that, despite speculation, no corporate restructuring is planned.
Separately, on Tuesday, REIT Vornado Realty Trust (down $1.31 to $79.69, Research) said it had bought a 1.2 percent stake in McDonald's during the third quarter.
Market breadth was negative. On the New York Stock Exchange, losers beat winners eight to seven on volume of 1.78 billion shares. On the Nasdaq, decliners topped advancers by four to three to two on volume of nearly 1.96 billion shares.
In economic news, the Institute for Supply Management's manufacturing index edged down to 59.1 in October from 59.4 in September, topping economists' forecasts for a slide to 57. However, the prices paid component, the report’s inflation read, edged higher.
A separate report showed that construction spending rose 0.5 percent in September, in line with estimates.
U.S. light crude oil for December delivery rose 9 cents to settle at $59.85 a barrel on the New York Mercantile Exchange.
COMEX gold fell $6.30 to settle at $460.60 an ounce.
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