By Atossa Araxia Abrahamian
NEW YORK (Reuters) - U.S. stocks fell on Tuesday, led by losses in technology after brokerage downgrades of Intel <INTC.O> and other major companies amid worries about third-quarter U.S. earnings.
Shares of Intel, the world's largest semiconductor maker, lost 2.7 percent to $21.91 after negative reports by at least two brokerages. Robert W. Baird & Co cut its price target for Intel, citing weak demand for notebooks.
The news ignited a bit of selling sentiment across the board in large-cap technology shares, including Apple, which has been under pressure in recent weeks.
Michael James, senior trader at Wedbush Morgan in Los Angeles, points to Apple's relative underperformance in recent weeks as the main cause of the decline in tech stocks.
"Since Apple is 20 percent of the Nasdaq, there's a spillover in tech stocks in general. The Intel downgrade and the semiconductor stock performance have made people cautious," James said.
Apple's stock cut most of its earlier losses and was down just 0.2 percent at $637.10 in mid-afternoon trading.
Microsoft <MSFT.O> shares lost 1.6 percent to $29.31 and ranked as the biggest drag on the Nasdaq.
Shares of Netflix <NFLX.O> slid 9.3 percent to $66.63 after Bank of America Merrill Lynch cut the video streaming company's stock to "underperform" from "buy."
The PHLX semiconductor index <.SOX> tumbled 1.5 percent.
Chinese Internet company Baidu <BIDU.O> was also downgraded by Credit Suisse to "underperform" from "neutral." Its shares shed 7 percent to $106.29.
Analysts expect earnings reports for S&P 500 companies to show a drop of about 2.4 percent on a year-over-year basis, according to Thomson Reuters data. This would mark the first quarterly drop in three years for S&P 500 companies' earnings.
Such warnings about earnings have left investors cautious after a rally that has driven the S&P 500 up nearly 16 percent so far in 2012, lifting it to an almost five-year high.
"Stocks had a big move for the year. Now people are waiting for more clarity on third-quarter results and fourth-quarter guidance," James said, adding that Monday's light trading volume increased stock volatility just ahead of earnings season.
The Dow Jones industrial average <.DJI> dropped 84.95 points, or 0.63 percent, to 13,498.70. The Standard & Poor's 500 Index <.SPX> slipped 10.37 points, or 0.71 percent, to 1,445.51. The Nasdaq Composite Index <.IXIC> fell 37.41 points, or 1.20 percent, to 3,074.94.
Earnings season will begin when Dow component Alcoa Inc <AA.N> reports quarterly results after Tuesday's closing bell. Analysts expect Alcoa's third-quarter results to show the aluminum company broke even, down from a profit of 15 cents per share a year earlier, according to Thomson Reuters data.
"Everyone is waiting to find out what Alcoa says after the bell," said John Petrides, portfolio manager with Advisors Capital Management in Hasbrouck Heights, New Jersey.
"Alcoa does a very good job of outlining global growth: They're in every big significant market, and they give a good read into whats going on in the global economy," he added.
Shares of Alcoa shot up 1.1 percent to $9.22.
Among other large multinationals that have warned about earnings, citing weak demand in Europe and China, are FedEx Corp <FDX.N>, Caterpillar Inc <CAT.N> and Hewlett-Packard Co <HPQ.N>. FedEx shares shed 0.7 percent to $85.73, while Caterpillar's stock lost 0.8 percent to $84.76. HP shares fell 0.9 percent to $14.33.
(Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)
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