Investors might think the economy is stabilizing but they're not ready to celebrate.
Wall Street slid Thursday following a surge earlier in the week and as traders braced for a release of the government report cards on the nation's biggest banks and for the April jobs report on Friday.
The Dow fell 102.43, or 1.2 percent, to 8,409.85 a day after the blue chips jumped 102 points to close above the 8,500 level for the first time in four months. The index is down 4.2 percent for the year.
The S&P 500 index fell 12.14, or 1.3 percent, to 907.39, and the Nasdaq composite index fell 42.86, or 2.4 percent, to 1,716.24.
Major market indicators dropped more than 1 percent, including the Dow Jones industrial average, which lost 102 points after gaining nearly the same amount Wednesday.
Stocks fell almost from the start as investors looked past upbeat reports on the job market and retail sales and decided to cut their holdings following what had been a 4.8 percent gain this week in the Standard & Poor's 500 index.
"With the rise we've seen lately there's no sense leaving it all on the table," said Dan Cook, senior market analyst at IG Markets.
The market seems to already be expecting positive news on the economy is now looking for the next catalyst to take stocks higher after a surge of more than 30 percent from 12-year lows in early March.
"This is a market that is starting to bake in a lot of positive surprises," said Craig Peckham, a market strategist at Jefferies & Co.
Investors pocketed gains ahead of the release of the government's "stress tests" on banks, which largely met with investors' expectations following news reports this week on which financial companies would be asked to raise money to safeguard against a weakening of the economy.
Stock futures turned higher late Thursday after the government released the results and said 10 of the nation's 19 largest banks need a total of about $75 billion in new capital to withstand losses if the recession worsened.
Financial stocks sold off in afternoon trading after weak demand at a Treasury bond auction raised concerns among investors about the government's ability to raise funds to fight the recession.
The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.
Technology shares posted the biggest losses Thursday after security software maker Symantec Corp. posted weaker-than-expected results. Retailers were mixed even after many of them, including Wal-Mart Stores Inc., reported better-than-expected April sales.
Symantec reported a loss for its fiscal 2009 fourth quarter, hurt by a hefty goodwill impairment charge and lower-than-expected revenue. The stock fell $2.60, or 14.8 percent, to $14.99.
Wal-Mart said sales of Easter merchandise and more shoppers in its stores helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. Wal-Mart rose 80 cents to $50.31.
Financials mostly fell ahead of the test results. The tests are part of the Obama administration's plan to fortify the financial system. The market rallied this week ahead of the results, despite some initial concerns that the tests would show more pain in the industry.
Citigroup Inc. fell 5 cents to $3.81, while Bank of America Corp. rose 82 cents, or 6.5 percent, to $13.51. Regions Financial Corp. fell 60 cents, or 10.3 percent, to $5.23, while Wells Fargo & Co. fell $2.33, or 8.7 percent, to $24.51.
Two stocks fell for every one that rose on the New York Stock Exchange, where volume came to a heavy 2 billion shares.
"Today was a little dose of reality and maybe a little fear coming back into the market," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC.
Saluzzi said investors shouldn't mistake the strong trading volume seen this week as a sign of conviction behind the moves. He said an absence of the big block trades that large financial firms make suggests the trading is more speculative, particularly in financial stocks.
"The real investor needs to be careful," he said.
In economic news, new applications for unemployment benefits fell last week to the lowest level in 14 weeks. That followed a better-than-expected private snapshot of the labor market on Wednesday and comes a day ahead of the government's April employment survey.
The monthly job survey from the Labor Department is often regarded as the most important economic news each month. A drop in unemployment could bolster everything from banks to retailers if consumers can continue to make mortgage payments, go shopping and spend money in other ways.
In other trading, the Russell 2000 index of smaller companies fell 12.15, or 2.4 percent, to 492.94.
The yield on the benchmark 10-year Treasury note jumped to 3.27 percent from 3.16 percent late Wednesday. The yield on the 30-year long bond rose to 4.32 percent from 4.11 percent.
The dollar was mixed after the European Central Bank cut its key interest rate a quarter point to 1 percent. Gold prices rose.
Light, sweet crude rose 37 cents to settle at $56.71 per barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average jumped 4.6 percent. Britain's FTSE 100 rose 0.1 percent, Germany's DAX index fell 1.6 percent, and France's CAC-40 fell 1 percent.