NEW YORK (CNNfn) - U.S. stocks fell Wednesday after Intel, American Express, and Veritas helped dash hopes for the quick profit recovery that investors had been banking on.
The selling spread to IBM amid concerns that the company's financial results, due after the close of trading, might disappoint. IBM's second-quarter sales ended up falling short, a sign stocks could face more trouble Wednesday.
"Sentiment is pretty negative," Charles Blood, financial markets strategist at Brown Brothers Harriman, told CNNfn's Street Sweep.
The Nasdaq composite index saw the biggest losses, widening its decline to 18 percent this year. But the Dow Jones industrial average came well off its worst levels of the day, helped by a big gain in Merck.
Just Tuesday, stocks rallied for the fourth gain in five sessions after financial results from several big-name companies topped forecasts. But that rally now looks more like the other gains amid the market's 16-month slide.
"It seems to be more of the same," Grace Fey, portfolio manager at Frontier Capital Management, told CNNfn's The Money Gang, referring to the profit worries behind the day's losses.
Apple Computer warned about possible sales shortfall while EMC posted a big drop in its quarterly profit.
Still, Brown Brothers' Blood is bullish that the worst news about slowing profits is nearly past.
"Everything we are looking at is telling us that the economy is pretty close to bottoming," he said.
The Nasdaq composite index fell 51.15 points, or 2.5 percent, to 2,016.17 while the Dow Jones industrial average slid 36.56 points to 10,569.83, after being down by as much as 126 points. The Dow is down 2 percent on the year.
A broader index, the S&P 500 index, lost 6.73 points, or 0.6 percent, to 1,207.31, widening its annual loss to 8.6 percent.
The blitz of bad earnings news took some attention away from Federal Reserve Chairman Alan Greenspan, who, in testimony to a House committee, kept alive hopes for another interest rate cut next month.
The Fed chief also expressed cautious optimism, signaling that six rate cuts this year have laid the ground work for recovery.
And not all the news disappointed. Boeing posted a quarterly profit that topped forecasts. Drug stocks, a defensive sector, rose as investors sought out companies with stable earnings.
More stocks fell than rose. On the New York Stock Exchange, declining stocks beat advancing ones 1,764 to 1,332 as 1.2 billion shares traded. Nasdaq losers beat winners 2,336 to 1,382 on volume of 1.7 billion shares.
In other markets, Treasury securities rose. The dollar fell against the euro and yen.
More disappointments
The latest round of disappointing corporate news signaled that more profit warnings may lie ahead.
Shares of Intel tumbled as investors sifted though its quarterly report, which showed profit tumbled 76 percent.
Intel gave a wide sales forecast, leaving some analysts uncertain about what to expect. Salomon Smith Barney and US Bancorp Piper Jaffray cut their financial outlook for Intel. But Bear Stearns raised its profit forecast.
One of the week's most anticipated earnings reports came after the close of trading when IBM (IBM: down $4.25 to $104.28, Research, Estimates) posted a profit of $1.15 per share, matching forecasts. But sales fell below targets.
By not warning, the world's largest technology company in terms of sales had escaped the selloff in most of the sector. Its shares were up more than 27 percent this year through Tuesday's close, a period when the Nasdaq shed 16 percent.
Still, concerns persisted ahead of IBM's conference call with analysts.
"I think the worry is they are going to say something negative about the third quarter," Frontier Capital Management's Grace Fey said.
Veritas Software (VRTS: down $13.34 to $37.08, Research, Estimates), a maker of business applications, said sales in the latest quarter fell short of forecasts while cutting guidance on its revenue growth rate. Apple Computer (AAPL: down $4.31 to $20.79, Research, Estimates) warned that revenue for the second half of the fiscal year could be below forecasts.
Data storage firm EMC (EMC: down $2.34 to $18.05, Research, Estimates) reported second-quarter profit that fell 75 percent from the period a year earlier and said its third-quarter results would also decline.
AOL Time Warner (AOL: down $4.80 to $44.65, Research, Estimates), the parent company of CNNfn, posted better-than-expected second-quarter earnings on a cash basis. But sales for the operator of the No. 1 online service fell short of the $9.7 billion First Call forecast.
"You had a couple of bellwethers in technology warn about expectations," Mark Donohue, institutional equity trader at US Bancorp Piper Jaffray, told CNNfn's The Money Gang. "We still have more companies to come out with their earnings, and I think the market's discounting more revisions downward."
Financial funk
The disappointments weren't limited to technology. American Express warned that its second-quarter profit will miss targets while J.P. Morgan Chase posted earnings that fell wide of expectations.
American Express (AXP: down $1.28 to $37.50, Research, Estimates) said it will take big charges for the recently ended second quarter.
J.P. Morgan Chase (JPM: up $1.28 to $43.58, Research, Estimates), the nation's No. 2 bank in terms of assets, said its profit fell to 33 cents a share, well off the Wall Street consensus forecast.
Greenspan hints at cuts
In the Fed chief's remarks, Greenspan signaled that the economy is weak enough to prompt another reduction in borrowing costs.
"The uncertainties surrounding the current economic situation are considerable ... the risks would seem to remain mostly tilted toward weakness in the economy," the Fed chairman said in prepared comments.
Greenspan took a balanced view on the economy, saying the six rate cuts this year "lay the groundwork" for recovery.
Still, after cutting interest six times this year, the most aggressive part of the Fed's rate cut campaign is likely over.
"Mr. Greenspan clearly wants to leave the door open to lower rates, but he was more explicit this time in his acknowledgement that there are risks on the other side," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The latest read on inflation showed slight gains. The Consumer Price Index, the government's main inflation gauge, rose 0.2 percent last month, the Labor Department reported. That was above expectations.
Much of the day's dip buying centered on drug stocks. Merck (MRK: up $3.07 to $67.55, Research, Estimates), Pfizer (PFE: up $2.43 to $41.01, Research, Estimates) and Bristol-Myers Squibb, (BMY: up $1.90 to $54.92, Research, Estimates) all rose.
On the positive side, aerospace manufacturer Boeing (BA: up $0.83 to $57.13, Research, Estimates) reported second-quarter profit that rose from a year earlier and came in above Wall Street forecasts.
Coca-Cola (KO: down $0.91 to $46.22, Research, Estimates), the soft drink maker, said its earnings rose to 45 cents a diluted share, topping forecasts.
And United Technologies (UTX: down $1.31 to $75.25, Research, Estimates), the diversified manufacturer, said it earned $1.16 a share in the latest quarter, topping forecasts by a penny a share.
Oil prices fell Tuesday, continuing a trend that could lower costs for businesses and consumers. Crude oil futures fell 76 cents to $24.83.
But so too did oil stocks, including Exxon-Mobil (XOM: down $1.05 to $84.25, Research, Estimates), Chevron (CHV: down $0.05 to $86.80, Research, Estimates), and Texaco (TX: down $0.24 to $64.76, Research, Estimates).
Art Hogan, chief market strategist at Jefferies & Company, is encouraged by the Fed's rate cuts, which typically precede stock market gains.
"I think the fourth quarter is going to be great," Hogan told CNNfn's Street Sweep. "We just don't have signs of it yet." 
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