Poor earnings and the dollar deflate Wall Street

Just one day after the tech-heavy Nasdaq stock index notched a new record high, Wall Street put the gears in reverse. While the Nasdaq suffered the least of three major indexes, losing just 11 points, or 0.2 percent, to close at 5,208, the Dow Jones industrials shed 181 points, ending at 17,919, or 1 percent lower on Tuesday. The S&P 500 also slipped by 9 points, or 0.4 percent, to finish at 2,119. Weighing down the blue-chip Dow were disappointing results from a number of its components, particularly IBM (IBM), which tumbled $10.70, nearly 6 percent.

The drop has taken the benchmark index back below the 18,000 level first crossed back in December.

Stocks are also being hit by a decline in the popular yen-dollar currency carry trade as the U.S. dollar, in a reversal of its recent trend, suffers its worst sell-off in two weeks. The greenback's drop accelerated after the Federal Reserve downwardly revised its industrial production and capacity utilization data. That raised investors' hopes that the central bank could delay the timing of its first interest rate hike since 2006 until December or possibly into early 2016.

However, the revision is unlikely to alter the Fed's rate timing. September "is by far the mostly likely lift-off date," according to Paul Ashworth at Capital Economics, followed by another rate hike later in the year. The futures market is more dovish, expecting only a single hike in December.

We'll know more when the Fed concludes its coming policy meeting next week. Ashworth suggested looking for language in the post-meeting announcement that inflation is "firming" as a sign that a September hike is on the way.

On the earnings front, IBM got hit hard after reporting mixed results on Monday night. Earnings of $3.84 per share beat expectations of $3.80, but revenues of $20.8 billion missed the $21 billion consensus estimate on a sizable drop in software revenue ($5.8 billion vs. $6.5 billion in the same period last year).

Big Blue's top line dropped 13.4 percent from last year in what was the largest revenue pullback since 2009. It also marked the 13th consecutive quarter of falling revenues. With IBM's heavy weighing in the Dow Jones industrials, the tech giant's slide dragged the broad market lower.

Verizon (VZ) dropped 2.4 percent, or $1.16 -- pulling other telecom stocks down in sympathy -- after cutting its fiscal 2015 revenue growth target on lower wireless net subscriber additions. United Technologies (UTX) missed revenue targets and cuts its fiscal year guidance citing softness in Europe and China.

The flow of downbeat earnings continued after the market closed Tuesday, as Apple (AAPL), Yahoo (YHOO), and Microsoft (MSFT) all left investors displeased. Yahoo was trading down 1.3 percent, and Microsoft dropped nearly 4 percent.

But Apple is getting hit especially hard after its results disappointed badly, casting a pall over the rest of second-quarter reporting and pushing the company's shares down nearly 8 percent after hours. Earnings of $1.85 beat the $1.80 consensus estimate (as is typical for Apple), but iPhone shipments of 47.5 million missed the 50 million analysts were looking for. Moreover, revenue in China revenue fell a whopping 21 percent vs. the previous quarter, to $13.2 billion.

Apple's performance has been led largely by the success of the last two iPhone refreshes -- raising the stakes for the "iPhone 6S" lineup expected out later this year.

Boeing (BA) reports Wednesday morning and will be another closely watched big name.

As of the end of last week, the S&P 500's blended earnings growth rate improved to a -3.7 percent loss vs. the -4.4 percent loss last week and the -4.5 percent decline expected before second-quarter earnings started rolling out. Of the 61 companies that have reported results, 72 percent have beaten expectations -- in line with the five-year average.

But with so many poor showings now reported, those earnings beats might be hard to maintain.