US stocks tumbled on Wednesday despite strong earnings reports from Morgan Stanley, Wells Fargo and Apple, as investors were disappointed with Federal Reserve Chairman Ben Bernanke's signal that the central bank is not planning further stimulus in the near term.
The Dow Jones Industrial Average declined 109.43 points (1.07%) to 10,120.53, its first drop in three sessions. While the drop was broad, the Dow's financial components got hit the hardest. JP Morgan Chase fell $1.21 (3.1%) to $38.42 and Bank of America declined 41 cents (3%) to $13.36.
Among the Dow's other decliners, Johnson & Johnson fell $1.46 (2.5%) to $57.12, Hewlett-Packard declined $1.13 (2.4%) to $45.48, and Alcoa dropped 26 cents (2.4%) to $10.59.
The declines followed testimony from Bernanke calling the economic outlook "unusually uncertain" but indicating that no moves were imminent to bolster the recovery. In addition, Bernanke's comments remained focused on how the central bank will need to tighten conditions to prevent inflation "at some point."
Investors said it seemed too early to be discussing an exit plan, and pointed to the "unusually uncertain phrase" as an area of particular concern.
Still, Coca-Cola managed to climb 84 cents (1.6%) to $54.08, leading the Dow's few gainers. Aggressive marketing around the soccer World Cup gave the company's namesake soda a boost in the second quarter, driving sales in markets from the US to Brazil and pushing profit up 16%.
Caterpillar and 3M also eked out gains ahead of their second-quarter reports due on Thursday morning. Caterpillar rose 44 cents (0.7%) to $66.87, while 3M added 11 cents (0.1%) to $82.30.
The Standard & Poor's 500 index declined 13.89 (1.28%) to 1,069.59, with all of its sectors closing in the red, led by financials.
However, Morgan Stanley jumped $1.58 (6.3%) to $26.80 after its quarterly results showed resurgent sales and trading operations boosted the investment bank's second-quarter profit.
Wells Fargo was another bright spot. The bank's profit jumped 20% from the prior quarter, as once-raging loans losses tapered sharply and hedging gains from mortgage-servicing rights boosted the firm's bottom line. Its shares edged up 15 cents (0.6%) to $26.06.
The Nasdaq Composite dropped 35.16 (1.58%) to 2,187.33. Weighing on the measure, Yahoo tumbled $1.29 (8.5%) to $13.91 after the Internet giant's second-quarter revenue came in below analysts' expectations.
Still, Apple climbed $2.35 (0.9%) to $254.24. The consumer-electronics giant posted a 78% jump in fiscal third-quarter profit on stout initial sales of its multimedia iPad device and the latest version of its popular smartphone, the iPhone 4, while Macintosh computer sales also hit a record.
For Australian ADRs listed on the NYSE, BHP Billiton weakened 84 cents (1.21%) to US$68.30, Rio Tinto Plc fell 60 cents (1.22%) to US$48.54,ResMed weakened $1.47 (2.27%) to US$63.19, Telstra Corporation dropped 42 cents (2.9%) to US$14.04, Telecom Corporation of NZ increased 2 cents (0.29%) to US$6.92 and Westpac shed $2.09 (2.1%) to US$97.53.
In economic news, Fed Chairman Ben Bernanke in his semi-annual monetary policy testimony signalled that no moves are imminent to bolster the recovery despite a 'somewhat weaker outlook' for the economy, and says the Fed will remain flexible in light of the 'unusually uncertain' economic outlook.
At 7:45 AM (AEST), the 10-year Treasury note yield was 2.88% and the five year yield was 1.64%.
European shares posted strong gains on Wednesday, lifted by upbeat second-quarter earnings, gains for commodity-sector firms and deal-making.
The Stoxx Europe 600 index climbed 1.2% to close at 249.24. The index ended marginally higher on Tuesday, snapping a four-session losing streak, with miners performing strongly.
Resource-sector stocks climbed again on Wednesday, with copper miners notably strong, as Kazakhmys shares jumped 7% and Antofagasta shares rose 4.8%.
On the regional level, the UK FTSE 100 index rose 1.5% to close at 5,214.64, the French CAC-40 index advanced 0.7% to end at 3,493.92 and the German DAX index settled 0.4% higher at 5,990.38.
Financials advanced in Europe, with Credit Suisse shares gaining 2.4% and Barclays up 1.9%.
Technology-sector firms also gained, with ARM Holdings shares up 2.5% and Nokia shares up 1.1% ahead of its results on Thursday.
In the auto sector, Fiat shares jumped 6.7% after it reported a return to second-quarter profit on better results across all its divisions.
Shares of Swedish paper company SCA surged 7.5% after reporting a 23% rise in second-quarter net profit.
Drug giant GlaxoSmithKline rose 1.1%. The firm reported a loss for the second quarter, owing to restructuring and legal charges incurred as the company sought to settle lawsuits over two of its key drugs and a factory in Puerto Rico.
Roche Holding shares weighed in the pharmaceutical sector, dropping 4.2% after an unfavourable recommendation from a US Food and Drug Administration panel regarding the company's cancer drug Avastin.
On the FTSE 100, Rio Tinto increased 74.50 pence (2.35%) to 3,128.84 pence and BHP Billiton improved 46.50 pence (2.48%) to 1,873.74 pence.
Most Asian markets finished higher as steel stocks rallied on news China is aiming to consolidate the local industry while Japanese shares fell on fears that the strong yen would hurt profits.
Japan's Nikkei Stock Average shed 0.2%, meanwhile Hong Kong's Hang Seng Index advanced 1.1% and China's Shanghai Composite rose 0.3%, stretching its winning run into a third straight session.
New Zealand shares tracked Wall Street higher although light volume trading pointed to ongoing caution. The benchmark NZX-50 added 0.3% or eight points to 3,003.41.
Copper rallied to a three-week high on the London Metal Exchange, shrugging off a weaker euro and a mixed performance in equity markets.
Aluminium rose $28 (1.39%) to $2,005 while copper firmed $180 (2.70%) to $6,850 and nickel added $385 (2.02%) to $19,475. Zinc strengthened $40 (2.14%) to $1,905 and lead gained $40 (2.20%) to $1,860. Comex copper was last quoted at 306.90 US cents per pound.
Gold futures ended near the unchanged mark after a day of mixed trading in equities and currencies left markets little definitive direction. But prices fell in post-settlement activity after the release of testimony by Federal Reserve Chairman Ben Bernanke did little to allay fears of deflationary pressure.
Spot gold was last quoted at $1,191.80. Comex gold futures dropped $6.50 (0.55%) to $1,185.20. Spot silver was last quoted at $17.64.
Oil prices slipped amid an unexpected surge in crude reserves in the United States, indicating weaker demand in the key energy-consuming nation. West Texas Intermediate was last quoted at US$76.26 per barrel.
At 07:45 a.m. (AET) the US dollar was quoted at 0.7841 euros, 86.94 yen, 1.141 AUD and 65.92 pence.