Stocks Lose In Final Hour

STOCKS LOSE IN THE FINAL HOUR

The Dow and S&P fell on Wednesday after Morgan Stanley revived concerns about the health of both the banking sector and the wider economy by posting its second straight quarterly loss and slashing its dividend.

The market has been sensitive to the outlook for banks ahead of the government's "stress test" results expected in the days ahead. Banks have been a key component in leading the six-week rally that drove the broad S&P 500 up nearly 25 percent from March's bear market lows.

"The financial sector is still heavily influencing the tone and direction of this market," says Keith Wirtz, president and chief investment officer of Fifth Third Asset Management. "Equities are just captive to anything that is coming out of financials and today, it was about Morgan Stanley."

Strategy Session with the Fast Money Traders

All the banks have had enormous runs in the past week, says Karen Finerman. I expect to see way more of a retrenchment in this space.

I think the earnings for the banks going forward will come into question, adds Tim Seymour. And quite frankly I’m now worried about JPMorgan and Capital One and what the stress tests will reveal because of their credit card exposure.

It seems to me that the S&P can’t get above 860, muses Pete Najarian. And the Vix is fluttering higher. Not good signs for the bulls.

Also a GM said it isn’t going to make its $1 billion debt payment that’s due on June 1^st, adds Guy Adami. I think that hammered stocks as well.

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TOPPING THE TAPE: TECH...NASDAQ UP AS OTHERS SLIDE

The Nasdaq , however, eked out a gain after AT&T reported a profit that fell less than expected, and an analyst said its iPhone partnership with Apple is starting to help rather than hurt profits, lifting tech shares.

Meanwhile after hours Apple reported a jump in quarterly earnings on higher iPhone sales, easily topping analyst expectations and sending the company's shares higher in late trading.

The consumer electronics and computer company said it earned $1.33 a share on revenue of $8.16 billion in its fiscal second quarter. In the same period last year, Apple reported $1.16 a share on a topline of $7.512 billion.

Analysts who follow the company were calling for a profit of $1.09 a share on sales of $7.96 billion.

I wouldn’t go piling into Apple hoping they sandbag into next quarter, counsels Guy Adami. They often sandbag but if they’re not, you’ll be buying a stock that’s too high.

If you’re holding Apple I think it’s time to take gains, counsels Tim Seymour.

I agree entirely, adds Karen Finerman. This stock is up huge year to date.

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AFTER HOURS ACTION: EBAY

Shares of eBay rose 5 percent to $15.51 in after market trade following the release of the company's quarterly results. Although the firm’s earnings and revenue dropped for the second quarter in a row, they beat analysts' expectations.

The company says revenue fell 8 percent to $2.02 billion. Analysts expected $1.94 billion.

I thought the quarter was very impressive, says Guy Adami. But I can’t get that excited about this stock.

It’s not the cream of the crop, echoes Pete Najarian.

If you’re looking for a trade I’d look at MercadoLibre, the Ebay of Latin America, counsels Tim Seymour. I think it’s a growth story.

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ANALYZE THIS: MICROSOFT KEEP TECH MOJO GOING

Microsoft , the world's largest software maker, reports fiscal third-quarter earnings Thursday after the closing bell.

Considering just last week, two research groups reported worldwide PC sales fell around 7 percent in the quarter, what should you expect?

Analysts polled by Thomson Reuters expect Microsoft to earn 39 cents per share on $14.1 billion in sales for the recently ended quarter. Uncharacteristically, Microsoft didn't offer guidance, citing economic uncertainty.

UBS Software analyst Heather Bellini tells Fast Money that she expects Microsoft will report in line with estimates; and she rates Microsoft as a 'Buy.' However, "we also think they will show better cost controls in this quarter and that could get investors excited,” she says.

Meanwhile, Thomas Weisel analyst Tim Klasell has a different take. He wrote in an April 17 research note that small, inexpensive netbooks would again eat into Microsoft's profits in the quarter. Those mini-laptops run a limited version of XP, which Microsoft sells to PC makers for much less than Vista.

Brendan Barnicle of Pacific Crest Securities wrote in a note to investors that he doesn't think Microsoft will beat expectations in the quarter, but Collins Stewart analyst Sandeep Aggarwal seemed bullish on the software maker's potential to report better earnings than the Street predicted.

What’s the trade?

I’d get long, counsels Tim Seymour. There’s a lot of short interest in this name.

I also like Microsoft, adds Guy Adami.

This stock just kills me, adds Karen Finerman. But I’m still long.

What do you think? We want to know!

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TOPPING THE TAPE: BLUE-CHIPS

Before the sell-off in the last hour, the stock indexes had been driven higher by brighter outlooks from companies reporting quarterly results.

For example, Caterpillar provided a boost, after JP Morgan upgraded the construction equipment maker due to its improved balance sheet and liquidity. Also Boeing provided a tailwind, when its lowered full-year outlook came in above Wall Street's expectations.

If you’re looking for a trade, I’d get long Honeywell into earnings, counsels Guy Adami. But I’d get out ahead of the numbers.

I think Boeing looks interesting right here, adds Tim Seymour.

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TOPPING THE TAPE: BIOTECH

Gilead Sciences jumped after quarterly profit beat estimates on increases sales of its drugs to treat the virus that causes AIDS

I like Gilead, counsels Guy Adami. This is a stock that I think you buy and hold. And I’d also look at Celgene.

Also keep an eye on Amgen, adds Pete Najarian. In the low $40’s it feels cheap.

I’d play the IBB , adds Karen Finerman. I don’t like the single stock exposure in this space. It’s very volatile.

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THE OBAMA TRADE: BROADCOM AND CREE

Marking Earth Day with a pitch for his energy plan, President Barack Obama on Wednesday called for a "new era of energy exploration in America" and argued that his proposal would help the economy and the environment at once.

"The choice we face is not between saving our environment and saving our economy — it's a choice between prosperity and decline," Obama said in his first post-election trip to Iowa, the state that launched him toward the White House. "The nation that leads the world in creating new sources of clean energy will be the nation that leads the 21st century global economy."

Guy Adami sees two plays. He likes Cree as a takeover target and Broadcom which Obama spoke about in an op-ed piece. Both are in play, he says.

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