CNBC
After posting a triple-digit gain in Wednesday's session, the Dow reversed course Thursday and closed with sharp losses.
msnbc.com news services
updated 10/21/2005 9:24:57 AM ET 2005-10-21T13:24:57

Wall Street’s main stock indexes fell sharply Thursday, driving the Dow Jones industrial average down over 133 points, as investors’ concerns over corporate profits and economic growth resurfaced.

Wednesday’s rally, which sent the Dow up 128 points to its first triple-digit gain in a month, proved short-lived, as Pfizer Inc. withdrew its profit forecasts for 2006 and 2007, increasing investors’ worries about the vulnerability of corporate profits. Intel Corp. spurred such jitters earlier this week in lowering its forecast for sales of its computer chips .

Members of the Federal Reserve’s interest rate-setting committee also fed inflation concerns, leading investors to wonder whether a continued rise in interest rates would slow the economy too much and lead to more corporate profits shrinking.

“Yesterday was a pretty good up day, but we were well oversold, so we shouldn’t probably get too excited about that,” said Linda Duessel, market strategist at Federated Investors in Pittsburgh. “This is just the beginning of the heavy earnings results from the third quarter, and from everything we’re seeing so far, the results are pretty mixed, but guidance in general is kind of cautious for the fourth quarter.”

Hugh Johnson, chief investment officer at Johnson Illington Advisors, said the market outlook is pessimistic: “Interest rates will be rising, and lots of companies are saying fourth-quarter earnings are heading down,” he told CNBC. “So it doesn’t look good on the interest rate side, and it doesn’t look good on the earnings side.”

The Dow Jones industrial average was down 133.03 points, or 1.3 percent, at Thursday’s close, while the Standard & Poor’s 500-stock index fell 17.96 points, or 1.5 percent. The Nasdaq composite index, full of technology stocks, lost 23.13 points, or 1.1 percent.

Oil prices fell sharply despite concerns about Hurricane Wilma, due to enter the Gulf of Mexico by the end of the week. A barrel of light crude settled at $61.03, down $1.38 on the New York Mercantile Exchange — a sharp drop, but one that had little effect on stocks.

“Energy prices really have fallen to a distant second as far as concerns for the market,” said Scott Wren, an equity market strategist for A.G. Edwards & Sons. “The big concern is whether the Federal Reserve is going to keep raising interest rates and, if they do, whether that’s going to slow the economy too much,” he added.

The Conference Board said its index of leading indicators , which attempts to forecast future growth, fell 0.7 percent for September, worse than the 0.5 percent drop expected by economists. The index slipped 0.2 percent in August.

Also, a report on U.S. factory activity in the U.S. Mid-Atlantic region showed a recovery in October after a post-Katrina slump, but a key inflation measure hit its highest level in 25 years.

In earnings news, Pfizer said profits fell 52 percent in the third quarter due to acquisition costs. While the company beat Wall Street forecasts for earnings before items, revenues were below expectations. That, combined with the company’s lowered forecasts, sent Pfizer shares tumbling $2.07, or 8.6 percent, to $21.90.

Major Market Indices

Dow component McDonald’s Corp. slid $1.29 to $32.40 after the fast-food chain met Wall Street’s profit forecasts , though overall profits fell 6 percent for the quarter.

Strong international sales helped the Coca-Cola Co. post a 37 percent increase in profits . Shares of the beverage maker, which beat analyst earnings estimates by 4 cents per share, rose 30 cents to $42.10.

SBC Communications Inc. added 13 cents to $22.54. The Dow industrial said costs associated with its pending acquisition of AT&T Corp. and hurricane damage at its Cingular Wireless joint venture dragged profits down 40 percent. But the company nonetheless beat Wall Street profit estimates by 7 cents before one-time charges.

Growing global cell phone demand pushed Nokia Corp.’s profits up 29 percent in the third quarter, helping the Finnish manufacturer beat Wall Street estimates by a penny per share. Revenues, however, failed to meet expectations, and Nokia dropped $1.15, or 6.7 percent, to $15.90.

Ford Motor Co. slipped 5 cents to $8.42 after posting an expected loss . Sluggish North American sales hurt the automaker, which said its full-year profit would come in at the low end of previous estimates. The company also said it would announce plans in January for a new round of plant closures and job cuts.

Overseas, Japan’s Nikkei stock average rose 0.5 percent. In Europe, Britain’s FTSE 100 closed down 0.07 percent, France’s CAC-40 gained 0.36 percent and Germany’s DAX index rose 0.38 percent.

Reuters and the Associated Press contributed to this report.

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