Markets Take a Dive After Earnings Reports Released

U.S. stock markets plunged today after earnings reports from several major firms cautioned that the recession continues to weigh on their business, prompting investors to lock in profits from the past month's rally.

The Dow Jones industrial average fell 3.6 percent, or 290 points, to 7842. The broader Standard & Poor's 500-stock index dropped 4.3 percent, or 37 points, to 832, while the tech-heavy Nasdaq was also down 3.9 percent, or 65 points, to 1608.

Stocks have rallied in recent weeks after plummeting to historic lows in March. The S&P has risen for six consecutive weeks, the longest run in two years. But the sell-off this morning signaled that many investors remain skeptical that the economy has truly turned the corner. A report by the Conference Board released today showed an index of leading economic indicators fell 0.3 percent in March, the ninth consecutive month of decline.

Larry Smith, chairman and chief investment officer at Third Wave Global, said investors should expect volatility, particularly in financial stocks, as the markets digest the rapid gains of the past month. But he said he felt the worst-case scenarios were over.

"I don't think we're returning back to the type of scenario that people are referring to as a meltdown," he said.

Bank of America reported profits of nearly $4.2 billion during the first quarter, 2 1/2 times what it made during the same period last year. The company attributed the gains to trading in financial products and a rush to refinance homes as interest rates drop. But the bank also warned that the economy continued to face "extremely difficult challenges" as the unemployment rate rises. Bank of America stock fell 24 percent, or $2.53, to $8.07.

The news dragged down the rest of the financial sector, which was down 6.5 percent. Citigroup plummeted 19 percent, while Wells Fargo fell 16 percent. J.P. Morgan Chase dropped 11 percent.

"It's a question of still some uncertainties out there, and that's causing investors to take a more cautious outlook," said Peter Cardillo, chief market economist with New York-based Avalon Partners.

Other companies reporting earnings this morning included pharmaceutical company Eli Lily, which announced first-quarter profit rose 23 percent to $1.3 billion, beating analysts' expectations. Its stock closed down 2.3 percent. Energy firm Halliburton edged up 0.1 percent after reporting a 35 percent drop in earnings to $378 million. The company said profit was affected by severance packages for employees.

Tech stocks were also big movers today. Oracle announced a $7.4 billion deal to buy Sun Microsystems after IBM abandoned its bid for the software company. Sun's stock shot up 36.8 percent to $9.15 amid heavy trading. Oracle, however, fell 1.3 percent to $18.82. The technology sector was down 3.5 percent for the day.

"The more merger activity that we see going forward, the better it will be for the equity markets," Smith said.

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