Investors’ growing anxiety about China’s attempts to slow its economy and disappointing earnings reports in the U.S. led to another selloff in stocks.
The Dow Jones industrial average fell 122 points Wednesday from a 15-month high but ended well off its lows for the day. Demand for safe havens like government debt rose, pushing yields lower in the Treasury market.
The concern in the markets is that China’s drive to clamp down on bank lending could endanger a global economic recovery. That helped send the dollar higher against other currencies and pushed commodity prices lower, which hurt the stocks of energy and materials companies.
Investors have been shuttling between heavy buying and selling in recent sessions as they try to determine where the market is headed this year. The Dow also fell 101 points Friday on concerns about earnings reports, but then jumped 116 Tuesday as health care stocks led the market higher. The Dow hasn’t moved by triple digits for three straight trading days since late October.
The market could get a lift Thursday from better-than-expected results at online auction company eBay Inc. and Starbucks Corp. Both companies reported higher profits after the close of regular stock trading.
The latest slide came after a top Chinese banking regulator said the country would step up its monitoring of banks in an effort to prevent speculative bubbles in areas like real estate. Last week China took steps to restrict runaway lending, which also sent stocks lower.
IBM Corp. led the Dow lower. The company reported late Tuesday that its earnings rose 9 percent from a year earlier, while sales rose less than 1 percent. The company’s forecast was seen as cautious.
"We might see profitability out of companies this season but we’re not really seeing revenue growth," said Dan Cook, senior market analyst at IG Markets in Chicago.
Banks posted mixed results. Bank of America Corp. reported better results and said credit conditions were improving, but also said the economic environment is "fragile." Wells Fargo & Co. sounded an optimistic note on consumer resilience, but Morgan Stanley fell short of expectations.
Investors are questioning whether a 68.2 percent gain in the benchmark Standard & Poor’s 500 index in the past 10 months has been too much. Those doubts are intensifying as more companies report results from the final three months of 2009 this week. The early read is that cost-cutting has again helped boost profits, but revenues remain disappointingly weak.
The Dow fell 122.28, or 1.1 percent, to 10,603.15, its biggest point loss since Dec. 17 and its biggest percentage drop since Dec. 31. The Dow had been down as much as 208 points.
The broader S&P 500 index fell 12.19, or 1.1 percent, to 1,138.04, and the Nasdaq composite index fell 29.15, or 1.3 percent, to 2,291.25.
Stocks fell Friday following an increase in bad loans at JPMorgan Chase & Co. Then, after a long holiday weekend, the market rose Tuesday led by a gain in health care stocks on hopes that the Democrats’ loss of their filibuster-proof majority in the Senate because of a special election in Massachusetts would slow down reforms that might hurt the profits of health companies.
Cook said questions about the stability of the market are likely to increase as Feb. 1 approaches. That is when the Federal Reserve plans to halt some of the emergency lending programs it set up to help revive the economy. Traders looking to deploy some of the low-cost money circulating through the financial system have helped drive the surge since March.
"Once that cheap cash goes away, what’s left?" Cook said. He predicts a "sizable correction" to let the economy catch up with the market.
Bond prices rose, driving their yields lower. The yield on the benchmark 10-year Treasury note fell to 3.65 percent from 3.70 percent late Tuesday.
The dollar rose, reaching a five-month high against the euro as concern grew about debt levels in Greece.
Gold fell. The gain in the dollar pushed commodity prices lower because a stronger greenback makes them more expensive for foreign buyers. Crude oil fell $1.40 to $77.62 per barrel on the New York Mercantile Exchange.
Traders have been hoping to see greater reassurances from companies that the economy is strengthening. So far the earnings results have been mixed.
Shares of eBay, which fell $1.03, or 4.4 percent, to $22.23, rose 5.2 percent in after-hours electronic trading.
Starbucks fell 29 cents, or 1.2 percent, to $23.29. The stock rose 3.1 percent in electronic trading.
IBM fell $3.89, or 2.9 percent, to $130.25 after its report.
Bank of America said it lost $5.2 billion in the fourth quarter, mostly from costs related to repaying $45 billion in government bailout money. The stock rose 17 cents to $16.49.
Despite improving bottom lines at Bank of America and Wells Fargo, many investors remain pessimistic about bank shares. JPMorgan Chase and Citigroup Inc. have both said in recent days that they remain cautious about the economy and aren’t sure when loan losses will start to shrink.
Wells Fargo fell 46 cents to $27.82, while Morgan Stanley fell 53 cents to $30.63.
Brinker International, the owner of Chili’s Grill & Bar, jumped $1.95, or 12.7 percent, to $17.26 after its results for the latest quarter topped expectations.
The Russell 2000 index of smaller companies fell 9.54, or 1.5 percent, to 639.61.
Three stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 4.8 billion shares compared with 4.6 billion Tuesday.
Overseas, Britain’s FTSE 100 fell 1.7 percent, Germany’s DAX index dropped 2.1 percent, and France’s CAC-40 fell 2 percent. China’s main Shanghai composite index dropped 2.9 percent, while Japan’s Nikkei stock average fell 0.3 percent
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