U.S. stocks fell deeper into the red Thursday after Federal Reserve Chairman Ben Bernanke told Congress that economic growth would be "sluggish" at best in the near term.
The Dow Jones Industrial Average declined after three straight days of gains. Losses in the S&P 500 index and Nasdaq also accelerated as the market digested Bernanke's comments.
The Fed chairman said risks to the economy have increased and signaled that the central bank is prepared to keep cutting rates. He said new hiring has slowed and that consumers, pinched by soaring energy prices and sagging home values, are likely to tighten their belts further, though growth should pick up later in the year. (Read the full text of Bernanke's prepared remarks.)
"He doesn't want to shock anybody," Matthew Tuttle, president of Tuttle Wealth Management, said of Bernanke's testimony. "I think it's good he's not setting the stage for say, 'We're not going to lower rates anymore even though you think we are.' It's good that he's toeing the company line."
Tuttle thinks Bernanke set the stage for two more quarter-point cuts -- during regular meetings -- "unless something really strange happens with the economy."
In opening statements, Treasury Secretary Henry Paulson said economic growth will be slower than in recent years, reiterating recent remarks he's made before Congress. Paulson said he expects the tax rebates coupled with investment incentives for businesses should help create more than half a million jobs before year end.
Intel led Dow decliners and sparked a sell-off in technology stocks after Goldman Sachs removed the chip maker from its "conviction buy list," according to Thomson Financial. Goldman Analyst James Covello was quoted as saying that, of all the tech companies he covers, Intel is the most exposed to slowing demand from the economic slowdown. Still, Covello kept his "buy" rating on the stock with a six-month price target of $30.
Techs also led the decline on the Nasdaq, with Nvidia down nearly 13 percent after the graphics chip maker reported the first weakening of gross margin in 13 quarters, stirring concerns about competition from AMD-owned rival ATI and Intel.
"The revenue guidance was better than expected, but the issue is operating expenses are going to be much higher than expected,'' said Stiefel Nichlas analyst Blake Fischer, who has a "sell" rating on Nvidia stock. "The company has been in the past very adamant on their ability to leverage gross margin, and Nvidia has now started to back away from that a bit.''
On the S&P, Liz Claiborne led decliners after the retail chain and clothing manufacturer said fourth-quarter earnings will be well below forecasts due to the consumer-spending slowdown. The company also said it will delay reporting earnings due to its current restructuring effort.
UBS shares were under pressure after the Swiss bank reported a quarterly loss of more than $11 billion and revealed $26.6 billion in exposure to risky U.S. mortgagesthat don't include subprime loans. The company also warned of a difficult year in 2008.
"This will raise concerns about further major writedowns in 2008," said Bear Stearns analyst Chris Wheeler, in a note to clients.
Shares of bond insurer MBIA jumped after the company said it has completed a $1 billion common-stock offering. Shares of Rival Ambac also rose.
Marriott reported a 20 percent drop in its quarterly profit and issued a weaker-than-expected forecast as the economic slowdown is affecting the hotel industry.
Network Appliance shares skidded after the data-storage company forecast lower-than-expected revenue due to banks cutting orders and Citigroup cut its rating on the stock to "hold" from "buy." Jefferies and RBC cut their price targets on the stock.
Goodyear Tire & Rubber shares moved higher after the company posted a profit due to higher tire prices.
Top cable operator Comcast reported its profit shot up 54 percent and subscribers increased across its digital video, broadband and phone divisions. The company also said all the things investors wanted to hear: that it will resume annual dividend payments and set a 2009 target to complete its $7 billion stock-buyback plan in order to boost the sagging share price.
The saga of Microsoft's attempt to take over Yahoo took a new turn when news emerged that Yahoo is holding talks with News Corp. about swapping MySpace and other News Corp.-owned online properties in exchange for a stake of 20 percent or more in Yahoo.
Earlier, a pair of reports delivered a mixed bag of economic news. The Labor Department reported that first-time claims for unemployment benefits fell more than expected, but the four-week moving average rose to its highest level in more than two years. The U.S. trade deficit narrowed more sharply than expected, while the annual trade deficit shrunk for the first time in six years.
-- Jeff Cox contributed to this article