Stocks extended losses Wednesday following a handful of weak earnings results in the financial sector and strong results from tech giants IBM and Apple, although the iPad maker's shares slipped in afternoon trading.
The Dow Jones Industrial Average fell more than 20 points after closing at a new 2 1/2-year high in the previous session.
Bank of Americaand American Express fell, while IBM and Procter & Gamble and gained.
The S&P 500 and the Nasdaq remained lower. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose near 17.
Most key S&P sectors declined, led by materials, financials and consumer discretionary.
At mid-afternoon, tech stocks began to sell off more, as even Apple, which posted a surge in profits that beat Wall Street expectations, turned negative, as investors took profits, according to Dave Rovelli, director of trading at Cannacord Gennuity. Apple hit a high a for the day at 9:31 a.m., and inched lower ever since, until turning negative after 2 p.m.
"We’ve come so far so fast, this is just normal, nothing to write home about," Rovelli told CNBC.com, adding that he wouldn't be surprised to see profit taking continue for two or three days.
Normally, huge earnings results from IBM and Apple would have sent stocks soaring, but disappointing results from Citigroup on Tuesday and Goldman Sachs on Wednesday became a "reality check" for traders, since financials had been leading the market. "Everyone was counting on banks to lead us to a new high," Rovelli said.
MOre earnings results were expected from major financials later this week, including Morgan Stanley on Thursday and Bank of America on Friday.
But the market may also be reacting to a report by Bloomberg that Tom DeMark, president of Market Studies, is predicting an 11 percent drop in the S&P 500 that would begin after the index reaches a market top within a week.
Financials may just be taking a breather after surging by double-digits since early December.
That’s particularly true for regional bank stocks. From Nov. 30 through Jan. 18, the KBW Regional Bank Index has soared 22.4 percent, compared with a 20.8 percent gain in the more general KBW Bank Index. The S&P 500 Index gained 9.7 percent in that time frame.
Whether bank stocks keep rising from here, as fourth quarter earnings results are steadily released, will depend on the overall strength of the economy, Christopher Nolan, regional banking analyst at CRT Capital told CNBC.com.
“If the economy sees slow steady progress, you’ll see financials do quite well,” Nolan says.
A slew of regional banks begin reporting earnings this week, including PNC Financial on Thursday, SunTrust on Friday and Citi National , Zions Bancorp and KeyCorp next week.
On Wednesday, Goldman Sachs fell more than 4 percent after the banking giant posted a 53 percent decline in quarterly profit, reflecting the difficulty Wall Street had in generating trading revenue in a volatile interest-rate environment.
The fact Goldman's sales fell short indicates "they are still trying to figure out a post-recession world also, and that has everybody scratching their heads," Kinahan said.
Rival Wells Fargo also declined, even after the bank hit estimates square on, thanks to double-digit revenue growth.
Bank of New York Mellon and Northern Trust both fell after the regional banks said their quarterly profits slipped.
Bank stocks were also under pressure a day earlier in the wake of a disappointing earnings report from Citigroup, led by a sharp drop in bond-trading revenue. Meanwhile,Citigroup named John Havens, the head of investment banking, to be president and chief operating officer.
Meanwhile, American Express slipped after the credit card company said it will close customer service centers and cut 550 jobs as it helps more people on the Internet, a move that will cost the company $74 million after taxes.
On the tech front, Apple turned negative Wednesday afternoon after initially rebounding after the iPhone maker blew through earnings estimates on strong iPad sales. In addition, at least 11 brokerages raised their price targets for the stock. Apple had dropped more than 2 percent on Tuesday after the company announced CEO Steve Jobs would be taking another medical leave. (Read More: Can Apple Still Innovate Without Steve Jobs?)
IBM gained after reporting a quarterly profit above Wall Street estimates. Several brokerages also raised their price targets for IBM.
Also among tech stocks, Cree plummeted almost 15 percent a day after the maker of semiconductor and LED products gave a weak outlook for its current quarter, although profits in its first quarter soared 47 percent. In addition, JPMorgan and Oppenheimer cut their price targets for the company.
Online auction company eBay fell ahead of posting earnings after the bell on Wednesday, while Google also a sank a day before it was expected to report earnings.
Microsoft shares fell more than 1 percent after Stifel cut its price target on the Dow component to $37 from $40.
And Nintendo announced that it will launch its new handheld 3D gaming consolein the U.S. market on March 27 at a price tag of $250. Shares were trading lower.
In other news, Mosaic tumbled more than 7 percent after Cargill said it plans to give up its stake in the fertilizer company, valued at about $24.3 billion, according to the Wall Street Journal.
Comcast rose following news the Federal Communications Commission approved its purchase of NBC Universalfrom GE (CNBC's parent company). Meanwhile, RBC raised the Internet and cable company's price target to $24 a share from $21, and Collins Stewart raised its rating on the stock to "buy" from "hold."
Materials stocks led the market lower much of the session, led by US Steel , which was cut to "hold" from "buy" by Deutsche Bank, citing valuation. Shares of the steel producer have recently slumped after surging since later October.
The dollar dropped against a basket of currenciesand the euro surged to an eight-week high as investors gained confidence in the European Union's ability to navigate debt concern in peripheral Euro nations.
Oil prices reversed earlier gains to trade below $91 a barrelwhilegold rose for a third straight sessionto close above $1,370 an ounce.
A major downdraft or sell-off doesn't appear to be on the horizon as the VIX continues to hover at fairly low ranges, said J.J. Kinahan, chief derivatives strategist at TD Ameritrade. The measure of volatility rose less than 3 percent on Wednesday.
"It's more of a natural trade," Kinahan said.
On the economic front, housing starts dropped to an annual rate of 529,000 units, down 4.3 percent from 553,000 in November, reported the Commerce Department. Building permits, meanwhile, surged 16.7 percent, to 635,000, the biggest gain since June 2008.
Plus, the Mortgage Bankers Association'sseasonally adjusted index of mortgage application activity rose 5 percent in the week ended Jan. 14 as lower mortgage rates prompted a 7.7 percent gain in refinancing applications. Applications for home purchases fell 1.9 percent.
In Europe, shares ended lowerafter hitting 28-month highs, led by miners.
On the Calendar This Week:
WEDNESDAY: Earnings after-the-bell from eBay.
THURSDAY: Weekly jobless claims, existing home sales, leading indicators, Philadelphia Fed survey, oil inventories; earnings before-the-bell from Morgan Stanley, Fifth Third, Huntington Bank, Southwest Airlines, United Health, Union Pacific; earnings after-the-bell from Advanced Micro, Capital One.
FRIDAY: Dodd-Frank rulemaking deadline; earnings before-the-bell from Bank of America, GE, BB&T, Schlumberger and Sun Trust.
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