Wall Street drops on disappointing IBM results, housing data

By Medha Singh

(Reuters) - The three main indexes fell on Wednesday, a day after their strongest rally in seven months, as IBM snapped a run of strong earnings from blue-chip companies and disappointing housing data dragged down shares of Home Depot and homebuilders.

Strong corporate reports drove Wall Street up more than 2 percent on Tuesday, and some traders said Wednesday's fall could be due to profit booking as investors fret over tariffs, rising interest rates and wages hitting profits.

"It's too early to tell if Tuesday's rally was a 'dead cat bounce' or the market setting a base," said JJ Kinahan, chief market strategist at TD Ameritrade. "We're coming off an incredible day, so it wouldn't be unusual to see some profit taking."

Shares of IBM slid 6.6 percent after the company's quarterly revenue fell more than expected, pointing to a bumpy recovery for the member of the Dow Jones Industrial Average.

Home Depot dropped 4.7 percent and Lowe's Cos fell 3.5 percent after Credit Suisse downgraded the shares of the two home improvement retailers due, in part, to a softening sentiment in the housing market, which has been a weak spot in a robust economy.

Data on the day showed U.S. homebuilding dropped more than expected in September, while rising borrowing costs knocked mortgage activity last week to its lowest since 2014.

That hit homebuilders and construction material makers, with the PHLX housing index sliding 2.46 percent.

All 11 S&P sectors were lower, with the technology and consumer discretionary indexes falling 1 percent.

"People are a lot more on edge than they were a few weeks ago since we had the pullback. Every time there's weakness people start to get nervous and feel we might be heading into a second pullback and that very well might be the case," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

At 11:40 a.m. EDT the Dow Jones Industrial Average was down 178.17 points, or 0.69 percent, at 25,620.25, the S&P 500 was down 14.71 points, or 0.52 percent, at 2,795.21 and the Nasdaq Composite was down 49.24 points, or 0.64 percent, at 7,596.25.

The minutes of the Federal Reserve's September policy meeting is due at 2:00 p.m. ET (1800 GMT), but as Fed policymakers have been saying they expect to continue a rate-hike cycle, little new information is expected.

Among the brighter spots was Netflix, which rose 5.3 percent, though it had pared some early gains, after reporting blowout subscriber addition numbers.

United Airlines shares climbed 4.3 percent after a solid third-quarter profit and again raising it 2018 outlook. That also lifted other airline stocks.

Declining issues outnumbered advancers for a 3.15-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 2.91-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 11 new lows, while the Nasdaq recorded nine new highs and 57 new lows.

(Reporting by Medha Singh in Bengaluru; Editing by Anil D'Silva)