Stocks retreat after big jump; Nasdaq slides as Microsoft, Amazon stir unease about tech

Stocks pull back after rally; Microsoft tumbles

NEW YORK — Investors are taking a breather after a surge in stocks that sent the Dow Jones industrials above 9,000 for the first time since January.

Stocks fell Friday, as disappointing earnings from Microsoft Corp. and Amazon.com Inc. weighed on the technology-heavy Nasdaq composite index. The Dow and the Standard & Poor’s 500 index lost less than 0.5 percent.

Microsoft dropped 8 percent after company reported revenue that fell short of analysts’ expectations. Amazon.com also reported weaker-than-expected sales, and its shares fell more than 8 percent.

The reports underscore the prevailing theme of earnings season thus far: Companies have been able to report better-than-expected earnings in large part because of aggressive cost-cutting measures, not stronger sales. Revenue at some companies is still sagging as consumers forgo spending to shore up their savings amid the ongoing recession.

Still, investors have taken the improved results as confirmation that the economy is healing and that a turnaround is possible by the end of the year.

“We are of the opinion that it may not be a straight line, but things are going to continue to get better,” said Keith Walter, portfolio manager at Artio Global Equity Fund.

On Thursday, news that existing home sales rose in June for the third straight month and by more than economists had expected added to the market’s optimism.

In just nine days, the Dow and the S&P 500 index have climbed 11 percent, reigniting a rally that carried the market up as much as 40 percent this spring. That rally weakened last month as still-growing unemployment and weak consumer confidence fed doubts about the economy’s recovery.

Despite the market’s impressive performance, analysts warn that investors still have a number of obstacles to contend with, including earnings reports from retailers that will provide more insight into the financial health of the consumer.

“It’s healthy that there is fear and skepticism in the marketplace,” said Jeffrey Frankel, president of Stuart Frankel & Co. “The more people are concerned and the more people are careful, the healthier the market will be. What gets us in trouble is when there is no fear.”

In early afternoon trading, the Dow fell 22.75, or 0.3 percent, to 9,046.54, while the Standard & Poor’s 500 index lost 3.88, or 0.4 percent, to 972.41. The Nasdaq fell 20.73, or 1.1 percent, to 1,952.87.

Bond prices were little changed. The yield on the benchmark 10-year Treasury note was flat at 3.67 percent from late Thursday.

Traders were disappointed by the Reuters/University of Michigan index of consumer sentiment’s final July reading, which fell to 66.0 from 70.8 in June. Analysts want to see gains in confidence because that signals consumers might be more willing to increase how much they spend. Consumer spending accounts for about two-thirds of U.S. economic activity.

Analysts say a break in the market’s advance is warranted and disappointing earnings reports gave investors reason to lock in some of the recent gains.

Microsoft fell $2.26 to $23.30, while Amazon.com dropped $7.96 to $85.92.

The dollar was mixed against other major currencies, while gold prices fell.

Oil rose 21 cents to $67.37 a barrel.

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange, where volume came 484.1 million shares, compared with 617.5 million traded at the same point Thursday.

The Russell 2000 index of smaller companies fell 1.17, or 0.2 percent, to 544.67.

Overseas, Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index fell 0.3 percent, and France’s CAC-40 lost 0.2 percent.

Japan’s Nikkei stock average jumped 1.6 percent, while Hong Kong’s Hang Seng index gained 0.8 percent. The Hang Seng stands at its highest level in 10 months.