Apple beat Wall Street expectations for profit and revenue, but iPhone sales fell 3 million short of expectations—despite hitting a record 51 million. Also, the company cautioned that its revenue growth would soon slow. That led to an 8 percent drop in Apple's stock, reducing the value of the company by $40 billion.
Investors seemed to latch on to even minor blemishes. General Electric's profit margin from industrial operations by improved by 0.66 percent, barely missing its target of 0.7 percent. Still, that was enough to send shares down 11 percent since it reported results January 17.
"The market is punishing those that don't deliver," says Krosby.
On the other hand, companies that have posted strong results and outlooks for 2014 have been bid up sharply, despite the overall market slide.
"The companies that come out with strong data and margins that are intact are getting rewarded," Krosby says.
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Google posted a 17 percent gain in revenue and profit Thursday, and shares remained up by 2 percent despite the broader market decline. Caterpillar's earnings per share beat analyst expectations by 21 percent, and the company raised expectations for profit in 2014 last Monday. Shares responded by rising 7 percent since then.
The outlook for corporate profits and revenue for 2014 is strong, according to S&P Capital IQ. Revenue is expected to rise 4.5 percent for the year, compared to just 1.9 percent in 2013, and earnings are expected to rise 8.5 percent for the year, better than 2013's 5.8 percent gain.
But investors are concerned that this isn't quite enough to justify stocks' high prices at a time when the Federal Reserve decision to slow its stimulus program is making cash a little less easy to come by. Less cash in the system means less cash for investors to buy stocks with.
"The more you drain the stimulus, the better results you need to see," Krosby says.
The slowing stimulus is crushing stocks in developing nations, because investors fear a smaller supply of cash in the world will drain money from their economies. At the same time the Chinese economy appears to be slowing and prices for European goods are growing more slowly than the European Central Bank had hoped, raising fears of deflation there.
"All these concerns are translated into people paring back on any type of risk," says Robert Pavlick, chief market strategist at the investment firm Baynan Partners.
—By The Associated Press