Stocks ended sharply lower after a day long selling spree, sparked by worries corporate earnings growth is showing signs of weakening.
Seventy-six percent of the S&P 500 traded lower. Industrial and materials stocks were the hardest hit as selling spread beyond the battered technology sector.
Telecoms and financials gave up gains in the final hour. Losers outpaced gainers on the New York Stock Exchange by almost two to one in a sell off that traders say was mainly based on worries about corporate earnings.
"We certainly had a lot of drama today," Arthur Hogan, Managing Director at Jefferies, told CNBC.com. "I think the major concern is that we've had a laundry list of household names giving lackluster earnings guidance and I think that's got investors trying to figure out if stocks at these levels are really worth it."
Crude oil prices, which were trading above $53 a barrel, swung sharply to trade down 1.5%.
"So far earnings season has not dazzled anybody," Stephen Porpora, Managing Floor Broker at William O'Neil, told CNBC.com. "We've had decent earnings, but it's not stellar and after double-digit gains, it now looks like single digits. I think the market is nervous to be honest."
"I'm not suprised by what we're seeing because there's really nothing to send the market higher," Bill Strazzullo, Chief Market Strategist at Bell Curve Trading told CNBC.com. "The stimulus that was suppose to take us higher was Fed easing and we're not going to get that. Earnings are solid, but the growth is slowing. I think there's been a reevaluation to determine if the risk/reward makes sense at these levels."
Treasury prices rose, sending yields lower, in a flight-to-quality move.
Boeing led the Dow lower after Wachovia downgraded the company to market perfrom from outperform on concerns that orders for commercial aircraft have peaked. The stock fell more than 3.5%, shaving some 25 points on the Dow.
Boeing wasn't the only loser in the industrial sector. Eaton Corporation also dragged down the sector after its shares fell sharply. The maker of industrial parts and components reported an increase in fourth-quarter earnings of 15%, but projected flat revenue and profits for 2007 due to weakness in the heavy-duty truck market.
Lockheed Martin and Boeing announced a strategic alliance to work on U.S. air transport traffic projects.
Financial stocks were one of the few bright spots in the market. Shares of Goldman Sachs , Merrill Lynch , Morgan Stanley and JP Morgan Chase all traded higher.
American Express said its fourth-quarter profit rose to 75 cents a share compared to the consensus estimate of 76 cents a share among analysts surveyed by Thomson First Call.
The Nasdaq got a slight lift early in the session when some traders picked up selective beaten-down tech shares, but overall concern about tech earnings strength and future earnings growth prevailed.
UBS lowered its price target on Dell to $26 saying it believes the computer company will suffer large PC share losses in the U.S. and Europe and 4Q07 revenues will be weaker than anticipated.
Shares of Apple were higher in pre-market but turned lower. The stock was pounded last week when the computer maker forecast fiscal Q2 earnings that failed to meet the Street's expectations.
Sun Microsystems is expected to announce that it will buy Intel chips to use in its server systems, according to reports. The deal is seen as a blow to Intel competitor Advanced Micro Devices.
Dow component Pfizer reported a fourth-quarter profit, excluding one-time items, of 43 cents per share, a penny ahead of the Thomson Financial consensus estimate. Quarterly revenues also beat expectations, but the company missed its target for full-year sales of cholesterol treatment Lipitor of $13 billion.
Citigroup has agreed to buy the mortgage unit of ABN Amro for an estimated $3 billion. The unit services mortgages from brokers throughout the U.S. The deal would give Citigroup, already the world's largest bank, an additional 1.5 million customers.
Citigroup also announced the promotion of Sallie Krawcheck, its chief financial officer, to chairman and chief executive of its global wealth management division. Prudential upgraded Citigroup to overweight from neutral weight, noting the possibility that new management changes will lead to better operating leverage. Prudential raised its price target to $62 from $52.
In the energy market, New York light crude futures turned lower, unable to sustain a brief increase. Oil had been trading higher most of the day after cold weather hit the United States, which could boost demand for home heating oil.