NEW YORK - Wall Street tumbled again Wednesday as investors shifted their focus from improving credit markets to worrisome corporate profit forecasts that are raising fears of a deep economic slowdown. The major indexes fell more than 2 percent, including the Dow Jones industrial average, which lost about 350 points.
While reduced strains in world credit markets have eased some investors' nervousness about the economy, market anxiety remains high as hundreds of companies this week release third-quarter results and in some cases fourth-quarter forecasts that offer a glimpse of the rough conditions that may lay ahead.
Wachovia Corp., which is being bought by Wells Fargo & Co., said it swung to a huge loss in the third quarter while the drugmaker Merck & Co. said its quarterly profit fell 28 percent and that it would cut more than 10 percent of its work force.
Commercial and personal property insurer Travelers Cos. said hurricane-related losses pushed its third-quarter profit down 82 percent and forced it to lower its full-year forecast.
John Thornton, co-portfolio manager at Stephens Investment Management Group LLC in Houston, said investors' fear has shifted from the immediate concerns about tightness in credit and the resulting difficulty in borrowing to the broader economy as companies come out with their quarterly numbers.
"Even if it weren't for the credit crisis we'd probably be looking toward a pretty tough recession anyway," he said. "The third-quarter earnings are kind of uninspiring but third quarter hasn't been the real concern of people. I think the concern is the depth and duration of the downturn and the effect it's going to have on earnings."
In early afternoon trading, the Dow fell 357.14, or 3.95 percent, to 8,676.52 after being down 412 points in the early going. On Tuesday, the Dow retreated 231 points after forecasts from DuPont Co., Sun Microsystems Inc. and Texas Instruments Inc. raised fears about the economy.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 40.25, or 4.21 percent, to 914.80, and the Nasdaq composite index fell 44.07, or 2.60 percent, to 1,652.61.
Meanwhile, credit markets showed more signs of improvement after virtually freezing up last week. Bank-to-bank lending rates fell sharply overnight, indicating that credit is becoming easier to obtain. The London Interbank Offered Rate, or Libor, on three-month loans in dollars fell to 3.54 percent from 3.83 percent, dropping for an eighth straight day.
Demand for Treasury bills, regarded as the safest assets around, grew slightly compared to the previous day as economic worries led investors to shun risky assets in favor of government bonds.
The three-month Treasury bill yielded 0.99 percent, down from 1.07 percent late Tuesday. The levels are a notable improvement from the 0.20 percent seen last Wednesday, when investors were willing to take the slimmest of returns in exchange for a safe place to keep their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.62 percent from 3.74 percent late Tuesday. The dollar was sharply higher against other major currencies, while gold prices fell.
"We're making slow progress and confidence is returning but we're still not there yet," said Christopher Cordaro, chief investment officer at RegentAtlantic Capital LLC in Chatham, N.J.
He said the latest batch of quarterly results, which cover results through Sept. 30, don't reflect the full brunt of the credit freeze-up felt this month and the nervousness among some consumers following the stock market's swoon. While he expects corporate results will continue to worsen he also said the markets remain "in panic mode" and that investors are perhaps being overly dour in their assessment of how the economy will perform in the next few years.
"When you look at the fundamentals of equities around the world stocks are selling for very cheap prices," he said. "Behaviorally people project today's current bad news much further out into the future than they should."
In corporate news, AT&T Inc. said its third-quarter earnings rose 5.5 percent but missed analyst expectations in part because of strong sales of iPhones, which the carrier subsidizes. The stock fell $1.59, or 6.2 percent, to $24.14.
37.90 +1.57 +4.32
Other companies reporting results were mixed. Travelers rose $1.57, or 4.3 percent, to $37.90, while Wachovia fell 20 cents, or 3.3 percent, to $5.89. Merck slid $1.14, or 3.8 percent, to $28.83.
Thornton said the latest corporate forecasts are difficult to rely on because companies are grappling with many of the same unknowns that investors are struggling with about the extent of weakness in the economy.
"These markets are making it difficult to gauge how much to read into management comments because clearly they're dealing with unprecedented change in fundamentals. It's hard to take their word on their outlook," he said.
Light, sweet crude fell $5.08 to $67.10 a barrel on the New York Mercantile Exchange. On Tuesday, oil fell as a stronger dollar dented demand for commodities and overshadowed worries about a planned OPEC output cut.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 651.1 million shares.
The Russell 2000 index of smaller companies fell 19.21, or 3.62 percent, to 511.44.
Markets overseas fell sharply. Japan's Nikkei stock average fell 6.79 percent. Britain's FTSE 100 fell 4.46 percent, Germany's DAX index fell 4.46 percent, and France's CAC-40 lost 5.10 percent.
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