Stocks pared their losses, but remained down more than 1 percent, Wednesday as China, earnings and the dollar's gains clipped the market's momentum after Tuesday's 1-percent rally.
All 30 Dow components were lower, with Intel, Pfizer, Merck and Bank of America faring the best, and IBM, Kraft and Alcoa at the bottom of the pack.
A decline like this is to be expected, given the variety of challenges the market is facing, said Kathy Boyle, president of Chapin Hill Advisors in New York.
We're going to have these major swings," Boyle said. "Stocks are in a hammer patternand it looks like they're rolling over."
The dollar advancedagainst both the euro and yen amid the belief that the worst is over for the housing sector.
The U.S. currency held its gains despite a report this morning that housing starts fell unexpectedly in December. The Mortgage Bankers Association said demand for home loans rose 9.1 percent last week as mortgage rates hit a one-month low.
"Overall, the data should be dollar constructive," Boris Schlossberg, director of FX research at GFT, told Reuters. "The U.S. economy is still doing much better than Europe, and that's why we're going to see the dollar do well against the euro."
In other economic news, producer prices were essentially flat last month. The EIA will not be out with its usual weekly report on oil inventories due to Monday's holiday. Instead, the weekly inventory report will be out Thursday at 11 am.
Also at play today is China: Authorities there are taking aggressive steps to curb bank lending, in order to tamp down inflation and poke the real estate and commodities bubbles. That's also given the dollar a boost and taken a toll on material and energy stocks.
And then, of course, there's the January effect: Markets typically rise in the first two weeks of January then peter out by the third week.
Health-care stocks gave up early gains as the glow of the Republican win for the Massachusetts Senate seat formerly held by the late Ted Kennedy faded. The sector had benefitted as analysts suggested the win sounded the death knellfor President Obama's health-care reform.
Such expectations had propelled stocks to new 15-month highson Tuesday.
IBM was the biggest drag on the Dow, and made techs the day's biggest decliner, after the computer-services company beat earnings estimates and raised its forecast but delivered weak revenue.
Apple fans, you might want to sit down for this next tech bit: Buzz this morning is that the company may team up with Microsoft — no, that's not a typo — and use Bing as the default browser on the iPhone.
Bank stocks were one of the only bright spots — or, should we say least-bad spots — as traders were encouraged by an improving credit trend in Bank of America and other banks. Plus, many suspect that financial regulation may move to the back burner, or at the very least be modified. Though many remained cautious about the outlookfor the sector.
Bank of America led a parade of banks earnings this morning, disappointing investors with a loss of $5.2 billion, or 60 cents a share, which was worse than the 52 cents expected, but the nation's largest bank said its credit problems are beginning to stabilize. Its provision for credit losses dropped 14 percent during the quarter to $10.1 billion.
BAC shares were lower but still near the top of the Dow pack. And, while all 10 key S&P sectors were lower, financials were the best performer, down less than 1 percent. (The hardest hit were IT and materials, which lost more than 2 percent.)
Morgan Stanley reported its second straight profit but earnings fell short of analysts' expectations.
Wells Fargo , meanwhile,posted an unexpected profit of 8 cents a share, despite having to repay $25 billion in government bailout money, and Bank of New York Mellon reported its earnings rose sharplyamid an increase in assets.
US Bancorp said its profit more than doubledas mortgage banking revenue and deposits grew but continued to see more bad-loan writeoffs.
Coach shares tumbled as the handbag maker reported same-store sales rose just 3.2 percent in its latest quarter, falling short of expectations. Plus, the stock has more than tripled since its low last March below $12 as investorrs bet on luxury's recovery.
After the bell today, we'll get reports from eBay, Starbucks and Xilinx, among others.
Shareholders in Warren Buffett's Berkshire Hathaway will vote today on a 50-1 stock split for Berkshire's class B shares (BRK/B), paving the way for the company's deal to buy Burlington Northern. Such a split could also pave the way for Berkshire's inclusion in the S&P 500.
Kraft shares fell more than 2 percent after some unsually harsh words from Buffett, who owns a 9.4-percent stake in the company, on its planned acquisition of British chocolatier Cadbury.
Buffett professed his faith in Kraft CEO Irene Rosenfeld but said they just disagree on this deal.
"She thinks this is a good deal, I think it's a bad deal," Buffett said on CNBC this morning. "I think she's a perfectly decent person. She could be a trustee under my will. I just don't want her making this particular deal," he said.
Still to Come:
WEDNESDAY: Berkshire shareholder meeting; Obama's one-year anniversary; Congress starts debate on raising debt cap; earnings from eBay, Starbucks and Xilinx after the bell
THURSDAY: Weekly jobless claims; Philly Fed index; leading indicators; weekly crude and gas inventories; earnings from Goldman Sachs, Continental, Southwest, UnitedHealth, Xerox, American Express, Google, AMD and Capital One
FRIDAY: House hearing on financial-industry compensation; earnings from GE, McDonald's, Schlumberger, Kimberly-Clark and SunTrust
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