Blue-chip stock prices fell as news of weaker-than-expected earnings from Aetna, Data General, Delta Air Lines and Micron Technology raised fears that other concerns will report disappointing results.
The Dow Jones industrial average fell 26.77 points, or 0.33%, to 7,970.06. Union Carbide, which warned of a profit shortfall last week, led the blue-chip average lower, falling $1.69 to $47.31.
Aetna, Data General and Micron, all of which saw earnings forecasts lowered by analysts Tuesday, were the biggest percentage losers in the Standard & Poor's 500 index, which retreated 3.50 points, or 0.37%, to 951.93.
The dollar was mixed, and bond yields rose.
There may be more disappointments in store, said Ted Bridges, a money manager at Omaha-based Bridges Investment Counsel. With third-quarter earnings reports coming up, "you've got to own the names that are going to make or exceed" analysts' forecasts.
The Nasdaq composite index rose 7.91 points, or 0.47%, to 1,697.36, led by Intel, up $2.75 at $99.13, and Microsoft, up $2.19 to $135.50.
Aetna slumped $49.25 to $93.50 in trading of 8.4 million shares as Merrill Lynch cut earnings estimates for this year, citing sluggish revenue growth. Data General dropped $4.19 to $29.38 after Merrill Lynch analysts lowered estimates for the company's earnings.
Some investors said stocks have gained so much this month that the prices overstate earnings growth. The Dow is up 4.4% this month and 24% so far this year. The S&P 500 has climbed 5.8% and 28% this year. The Nasdaq is up 6.3% this month and 31% this year.
"The market is pretty expensive," said Scott Black, president of Delphi Management Inc. "Even if you're looking at tiny companies, there aren't many cheap ones."
Airlines have been among the market's top performers this month, but they gave back gains after Delta, citing ticket-price competition from competitors, warned of disappointing results for its current quarter. Delta retreated $4.63 to $102.06 after hitting a record 107.13 on Friday.
The American Stock Exchange Airline index, up 17% in the third quarter, fell 8.22, or 1.5%, to 547.98.
Chip maker Micron Technology said earnings for the quarter ended Aug. 28 rose to 33 cents a share, less than the average estimate of 48 cents. Its stock sank $3.44 to $37.06.
Oil-service stocks have been among the biggest gainers in recent months amid a shortage of rigs and strong demand for oil. But Transocean Offshore fell $1 to $48.94 and Smith International slid $1.31 to $76.25.
McKesson said it would pay $2.25 billion in stock and debt for AmeriSource Health, a 32% premium over Monday's closing price of $53.69. AmeriSource jumped to $60.25 on Tuesday, and McKesson gained $3.94 to $103.75.
Amazon.com rose $1.50 to $55.50. The online bookseller was downgraded to "buy" from "strong buy" by analyst Christopher Feiss at BT Alex. Brown & Sons because of valuation concerns.
Morgan Stanley Dean Witter Discover dropped 50 cents to $55.94 even as it reported third-quarter net income up 51% amid record profits in its securities and asset management businesses.
The yield on the benchmark 30-year Treasury slipped 4 basis points to 6.39%. On Sept. 12, the yield approached 6.68%.
The yield on the benchmark 30-year Treasury bond rose to 6.38% from 6.35% on Monday.
The dollar rose against most European currencies as Germany held interest rates steady, and it rose against the Japanese yen as U.S. officials signaled they would not pressure Japan to stimulate its stumbling economy and reduce its bulging trade surplus. It fell against the British pound on reports of strong economic growth in that country.
Overseas, Frankfurt's DAX index rose 0.2% and London's FTSE-100 fell 0.9%. Japanese financial markets were closed for a holiday.
Market Roundup, D10