An afternoon shopping spree by investors helped the markets rebound Wednesday after shaky earnings reports and inflation numbers caused an early plunge.
Led by sharp declines in venerable computer maker IBM, the Dow Jones industrial average dropped more than 400 points early Wednesday. It closed below 10,000 for the first time since March as investors unloaded stocks.
The Dow lost 435.07 points before slicing the decline, closing down 114.69 at 9,975.02. The Nasdaq fell as much as 187.85 points and climbed 44 points before closing down 42.40 at 3,171.56, buoyed by a solid performance from microprocessor giant Intel. The Standard & Poor's 500 index dipped 7.84 to 1,342.13.
More than two stocks fell for every one that gained on the Nasdaq, which posted a volume of about 2.5 billion shares, its third-highest ever. The New York Stock Exchange generated a heavy volume of 1.43 billion shares as nearly two stocks declined for every one that advanced.
Some traders were encouraged by the markets' ability to battle back from the early lows.
"The markets overreacted this morning," said Kathy Taylor, a vice president and assistant manager of Nasdaq trading at A.G. Edwards, who cautiously added, "I'd like to say this was a bottom, but I can't."
Other investors echoed her lingering pessimism.
"The good news is that the markets rallied and people are starting to buy, but we're not out of the woods yet," said Brian Conroy, head of listed trading at J.P. Morgan. "We need to hear some positive (earnings) guidance from companies going forward" to make an upturn sustainable for the long term.
Judging by the bad news that hit the markets during the earnings preannouncement season, the markets may have farther to go before investors jump on board and stage a turnaround.
"In my 18 years in this business, I've never seen so many surprises from so many different types of companies," said Jeff Logsdon, a senior vice president and industry analyst at Gerard Klauer Mattison. "When you want to trade long (term), you buy on the dips," he said. "Right now clients are more willing to sell on the spikes."
Disappointing earnings reports from IBM led the Dow lower. IBM fell $17.56, or about 16 percent, to $95.44 after the Armonk, N.Y.-based company reported that third-quarter sales
rose 3 percent to $21.8 billion, compared with $21.1 billion a year ago. Analysts had predicted sales growth of 6 percent or more.
IBM earned $2 billion, or $1.08 a share, matching consensus estimates from First Call/Thomson Financial, compared with $1.7 billion, or 90 cents per share, a year ago.
"(IBM's) results were collectively disappointing, and the tone on the conference call was considerably less upbeat and more cautious than the last two quarters," Bernstein analyst Toni Sacconaghi wrote in a morning research note.
He lowered fiscal 2000 earnings per share estimates to $4.45 from $4.54 and maintained an "outperform" rating on IBM's stock. Sacconaghi also trimmed fourth-quarter revenue growth targets to 7 percent from 13 percent and cautioned investors against buying IBM stock.
"There is simply too much uncertainty that is likely to linger through the end of Q4," he said.
Investors were also jolted by economic data from the government, which indicated a surprising surge in consumer price inflation. Consumer prices jumped a higher-than-expected 0.5 percent in September, the biggest advance since June. A sharp rebound in energy prices was mainly responsible for the increase.
The jump in the Consumer Price Index, the government's most closely watched inflation gauge, followed a 0.1 percent decline in August. It was the first drop in 14 years, the Labor Department said in its report Wednesday.
The report raises concerns that the Federal Reserve will raise interest rates--an action that would likely put the brakes on the economy and mark a stark reversal of many economists' expectations. For months, economic indicators have led experts to believe that the Fed would maintain rates and allow the economy to continue growing at a steady clip.
Despite negative numbers from the government, investors saw positive news in Intel's earnings report. Shares of Intel, a Dow component, rose $2 to $38.19.
Intel on Tuesday beat lowered earnings expectations in its third quarter but said the outlook for the fourth quarter looks like it could be disappointing. Still, third-quarter revenue came to $8.7 billion, a record for the chipmaker.
Shares of Microsoft, Apple Computer and America Online, which are set to report earnings this afternoon, recovered after early drops. Microsoft, another component of the Dow, rose $1.31 to $51.75; Apple shares closed unchanged at $20.13, after hitting a new 52-week low at $18.75; and AOL shares climbed $3.31 to $46.91.
The CNET tech index fell 40.71 to 2,489.97. Losers outnumbered winners, with 57 of the 97 stocks in the index falling, 37 rising and three remaining unchanged.
Of the 18 sectors tracked by CNET Investor, PC hardware and telecom equipment companies posted the sharpest drops, falling nearly 7 percent and 6 percent, respectively. Internet content companies were the day's largest gainers, climbing almost 4 percent.
RealNetworks saw its stock drop sharply on continued concerns about decreasing online advertising revenue from Internet businesses. Many struggling dot-coms have cut back advertising spending to save money in an effort to remain afloat. RealNetworks executives in a conference call Tuesday said advertisement revenue is slowing this quarter but represents a small portion of the company's total revenue.
RealNetworks shares, which have fallen about 75 percent for the year, tumbled $6.81, or 31 percent, to $14.88 despite the release of a positive earnings report. The company posted a 92 percent increase in third-quarter revenues Tuesday and beat Street estimates for the quarter.
Investors slammed shares of Copper Mountain Networks, sending the stock down $17.03, or 63 percent, to $9.84. The phone-equipment maker said it expects fourth-quarter sales and profit to decline from the third quarter.
Wall Street also punished shares of RF Micro Devices after the maker of cell phone semiconductors said it expects fiscal third-quarter earnings to fall short of forecasts on lower demand for chips. RF Micro fell $8.75, or 38 percent, to $14.25.
Sun Microsystems beat analyst expectations by a nickel Wednesday, reporting net income of 30 cents per share on revenue of $5 billion in financial results inadvertently posted hours early. Traders still pushed the stock down $1.06 to $110.31.
Investors rewarded good earnings news from PeopleSoft. The software maker rose $8.44, or about 26 percent, to $41.19 after reporting Tuesday that third-quarter net income was 23 cents a share, compared with analysts' consensus estimates of 7 cents a share as surveyed by First Call/Thomson Financial.
Handspring, a maker of handheld computers, enjoyed enthusiasm from investors, rising $13.69, or about 18 percent, to $91.56. The company posted a narrower-than-expected quarterly loss Tuesday and predicted that sales in the current quarter will top its earlier estimates.
News.com's Sandeep Junnarkar contributed to this report.