Wall Street retreated Tuesday after forecasts from Dupont, Sun Microsystems and Texas Instruments fed fears of a severe economic downturn.
After logging sharp gains Monday, the Dow Jones industrial average fell 2.5 percent, while the Nasdaq composite index lost more than 4 percent.
Some pullback was to be expected after the Dow shot up 413 points Monday. But investors poring over a mix of companies' third-quarter reports found enough unsettling outlooks to set off heavy selling.
Still, analysts said investor anxiety appears to have lessened considerably compared with the previous two weeks.
Strains in the credit markets eased further in response to a sweeping series of bailout measures by world governments, including a joint U.S. and European plan to buy stakes in private banks to boost to their lending. Demand for Treasury bills, regarded as the safest assets around, remained improved from last week in a sign that credit markets are gradually returning to a healthy state.
But analysts have warned that the market will see a stretch of volatile sessions as Wall Street recovers from this month's huge drop. Although investors have been expecting third-quarter earnings, and even fourth-quarter forecasts, to reflect the damage from the financial system's problems, the reality of companies' reports has been unnerving.
“It's just this back-and-filling stuff. It's driven by earnings, yes, but also emotion,” said Harry Clark, chief executive of Clark Capital Management in Philadelphia. “It's going to be this tug-of-war for a couple weeks at least.”
The technology-focused Nasdaq saw steeper declines than the other major indexes after server and software company Sun Microsystems warned it would post a loss for its fiscal first quarter and book a write-down. Texas Instruments shares fell to their lowest level in more than five years after the chip maker turned in disappointing earnings and issued a lackluster forecast amid slowing orders.
The Dow fell 231.77, or 2.5 percent, to 9,033.66.
Broader indexes also declined. The Standard & Poor's 500 index fell 30.35, or 3.08 percent, to 955.05. The Nasdaq composite index shed 73.35, or 4.14 percent, to 1,696.68.
The absence of steep late-session selloffs in the past few days and lighter trading volumes are signs that some order is returning to the market, said Kim Caughey, equity research analyst at Fort Pitt Capital Group.
At its worst during the past month, investors simply sold whatever they could and the crush of those cashing out weighed on the market. Much of that selling came in the final hour of trading, creating wild swings and massive pullbacks.
“There were a huge amount of redemptions both on the hedge fund side and the mutual fund side that were driving that in the darkest of days,” Caughey said, noting that investors now have more time to evaluate stocks on merit. “It's a more or less a normal reaction to company-specific news.”