Stocks were lower ahead of the close Wednesday led by the tech-heavy Nasdaq as the Dow appeared ready to break a five-day winning streak.
The Dow Jones Industrial Average fell more than 20 points after eking out another gain in the previous session. The blue-chip index had fallen as much as 50 points earlier in the session.
Microsoft and Bank of America were the top laggards on the Dow while Alcoa and Merck rose.
The S&P 500 and the Nasdaq were also lower. The CBOE Volatility Index, widely regarded as the best gauge of fear in the market, rose above 22.
"It’s probably premature to say we had a breakout the last couple days," said Ron Rowland, president and CIO at Capital Cities Asset Management. "More investors are once again looking at the reality of the situation that there’s still a lot of negative news out there."
Meanwhile, the equity strategy team at Bank of America Merrill Lynch cut its forecast for the S&P 500 Index, saying the broad-market index probably won't reach 1,300 before the end of the year. That's because Congress is unlikely to pass a new tax package before the Bush tax cuts expire Jan. 1, the strategists said in a report.
Fear of tax hikes in 2011 is likely to "constrain growth" among households and businesses in the fourth quarter, the report said. The brokerage does believe, however, that tax cuts will be restored retroactively in 2011, and it reiterated its forecast for the S&P 500 to hit 1,350 within 12 months.
Pressure was on the technology sector, with Adobe Systems plunging almost 20 percent after the software firm announced a disappointing fourth quarter forecast. In addition, at least seven brokerages cut their price targets on Adobe.
Microsoft shares fell nearly 3 percent after the tech giant announced that it raised its dividend by 25 percentto $0.16 per share.
Ebay slipped after the online retailer said the president of its main marketplaces unit was leaving the company and that third-quarter earnings would be at the high end of its own forecast range.
PMC-Sierratumbled after the broadband communications company lowered its revenue outlook.
Meanwhile, Research In Motion advanced after news the BlackBerry maker may unveil a tablet computer to compete with Apple's iPad, according to the Wall Street Journal.
Financials were also among the laggards as Goldman Sachs and Morgan Stanley sank after Deutche Bank said the investment banks could be hurt by how international regulators interpret the risks in various asset classes.
Shares of Jefferies also plunged after the investment bank reported lower third-quarter profit and revenueas trading activity slowed.
In addition, shares of insurers slipped with MetLife and Manulife Financial both down almost 5 percent.
Metals and mining stocks were leading the S&P 500, led by Cliffs Natural Resources and Freeport-McMoran .
Gold prices hit another record high above $1,293 an ounce, above $1,293 an ounce earlier Wednesday, but closed at $1,290 as the dollar sank.
Meanwhile, oil prices fell below $75 a barrelafter the U.S. Energy Information Administration reported crude oil inventories rose by 1 million barrels in the prior week.
Shares of the New York Times fell after the publisher said its third-quarter revenues would decline more than expectedbecause of a slowdown in digital advertising. Rival newspaper publishers also skidded, including Gannett , Journal Communications and Washington Post .
And American Airlines parent AMR plunged almost 10 percent after the company issued a third-quarter outlook that triggered a reduction in analysts' estimates. Other airline stocks were mostly lower.
In other earnings news, General Mills rose after the packaged-foods maker posted a better-than-expected profitand affirmed its full-year target, helped by increased sales of its cereals, yogurt and snacks.
CarMax soared to the top of the S&P 500 Index after the used car dealership chain reported a boost in profit. The company benefited from consumers affected by the economy, who favored previously owned cars and trucks.
Bed Bath & Beyond and RedHat are scheduled to report earnings after the bell.
Blockbuster shares took a nose-dive after the video-rental retailer was reportedly readying a bankruptcy filingin the next few days sparked by a shift in consumer preferences to Internet-based video.
Novartis shares were slightly lower even after the company said the FDA approved Gilenya, an oral drug to slow the disabling symptoms of multiple sclerosis.
Fertilizer producer Agrium rose after Bank of America raised its rating on the stock to "buy" from "neutral," citing a stronger earnings outlook and its potential role in increased M&A in the agricultural stock sector.
Meanwhile Potash shares were down after the fertilizer company filed a complaint with the SEC against BHP Billiton , which is trying to buy Potash.
In economic news, the Federal Housing Finance Agency reported Wednesday that U.S. home prices fell 0.5 percentin July from June, and 3.3 percent from a year earlier.
And demand for home loans fell for a third straight week, even as 30-year fixed-rate mortgages dropped to 4.44 percent. An index of both purchase and refi applications fell to a seasonally-adjusted 1.4 percent last week, as purchase loan demand fell 3.3 percent and refi requests slipped 0.9 percent, according to The Mortgage Bankers Association.
More information on the state of housing in the U.S. will be learned later this week, as existing home sales data is reported Thursday, and new home sales data is reported Friday.
Meanwhile, traders were still absorbing Tuesday's news that the Federal Reserve was prepared to provide support to the economy recovery "to return inflation, over time, to levels consistent with its mandate. "
The announcement from the Fed was a "pretty strong statement from a governing body," said Bruce McCain, chief investment strategist at Key Private Bank. The Fed was "pretty explicit that they see quite a bit of weakness," and their statement was "as close to a promise that they are going to engage quantitative easing" as anything.
The markets are lower after the news probably because prices had rallied so much over the course of September, fueled in part by renewed optimism over the economy's direction, he said.
"By undercutting that sense of somewhat greater optimism, it's allowed the market to sink back into the trading range its been in since the June lows," McCain said. "This is a market that hasn’t shown much conviction."
Meanwhile, investors were also paying attention to who replaces White House economic adviser Larry Summers, who plans to leave his post at the end of the year. Summers, a former Treasury secretary, will be returning to Harvard.
On Tap This Week:
WEDNESDAY: Earnings after-the-bell from Bed Bath & Beyond.
THURSDAY: Weekly jobless claims; existing home sales; leading indicators; Chicago Fed President Evans speaks; Volcker speaks; FCC meeting on opening up new airwaves; Earnings from Rite Aid and Nike.
FRIDAY: Durable goods orders; New home sales; Richmond Fed President Lacker speaks; Philadelphia Fed President Plosser speaks; NY Film Festival; Earnings from KB Home .
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