The Nasdaq lost more than 3% of its value on Tuesday after Wall Street analysts voiced concerns about the profit potential for several key tech names. Meanwhile, the broader market ended lower on worries about the worsening Middle East conflict.
The Nasdaq Composite index dropped 57.66 points, or 3.10%, to 1,804.96. The 30-stock Dow Jones industrial average fell 47.95 points, or 0.46%, to 10,314.75. The broader Standard & Poor's 500 Index, meanwhile, eased 9.69 points, or 0.85%, to 1,136.85.
Wall Street on Wednesday will turn its attention to the Institute of Supply Managment's gauge of activity in the services sector for the month of March. Investors are looking for more evidence that the U.S. economy is improving. Standard & Poor's is expecting a reading of 59.0, with any number above 50 indicating expansion. The gauge registered 58.7 in February.
Although recent data reports suggest the economy is emerging from its slump, investors are concerned that it is not rebounding fast enough to justify current stock prices.
Investors on Wednesday will also get more earnings reports to digest including a quarterly profit statement from housewares retailer Bed Bath & Beyond (BBBY).
Leading the market down on Tuesday was Microsoft (MSFT) after Goldman Sachs lowered its 2003 profits estimates for the No. 1 software maker. The investment bank said the economic recovery is "taking longer to gain traction" in the technology sector.
Also in the software sector, PeopleSoft (PSFT) shares plunged after the company warned that its first-quarter earnings will fall short of prior targets because of the cautious technology spending environment.
Meanwhile, computer maker International Business Machines (IBM) was lower after Goldman Sachs also trimmed its revenue and profit forecasts.
In the pharmaceutical sector, Bristol-Myers Squibb (BMY), a large drugmaker, said wholesale inventories of its drugs are too high. It also said decreasing them will hurt its future earnings.
One bright spot was Best Buy (BBY), the leading U.S. consumer electronics chain, which posted an 84% rise in quarterly profits thanks to strong sales of DVD movies, camcorders and big-screen televisions.
Growing turmoil in the Middle East sent crude oil prices soaring to six-month highs, raising the fortunes of major petroleum companies but also raising fears for investors. Higher energy prices can hurt corporate profits as they can increase the costs of manufacturing goods.
Large oil companies such as ExxonMobil (XOM) advanced on the rise in crude prices. There were reports that Iraq was pushing Arab states to cut crude production in efforts to punish the U.S., the world's largest oil consumer, for its support of Israel.
Also on Tuesday, investors weighed a report showing a 0.1% decline in U.S. factory orders in February. Standard & Poor's MMS had forecast a rise of 0.9%. The figure for January was revised downward to a gain of 1.1% (from an increase of 1.2% previously). Excluding transportation, orders were down 2.0%. Inventories fell another 0.4% after a 0.8% decline in January.
U.S. Treasuries traded higher as investors sought the safety of government bonds amid the stock market uncertainty.
In other economic news, the Bank of Tokyo Mitsubishi-UBS Warburg reported chain store sales fell 0.6% for the week ended March 30, up from the prior week's 0.8% drop. However, sales momentum accelerated to a year over year pace of 7.0% from last week's 4.9% due to Easter sales. Survey participants indicated that sales were generally below expectations with slow sales of Spring apparel. Poor weather was also noted for some areas.
Meanwhile, Instinet Redbook said same store sales dropped 1.1% for the fourth week of March versus sales for the month of February, while year over year sales were up 4.9% due to Easter.
European markets closed lower. In London, the FTSE 100 index was off 20.40 points, or 0.39%, at 5,251.40 as the March CIPS manufacturing index rose less than expected, to 50.7, but still came in above the 50.2 reading in February. The survey points to a continued pick-up in manufacturing conditions.
In Paris, the CAC 40 index was down 60.69 points, or 1.29%, at 4,627.33 following a report that French consumer confidence remained at a 5-month low in March.
In Frankfurt, the DAX index was off 86.21 points, or 1.60%, at 5,311.08 as EuroZone inflation data rises. Higher oil prices due to Middle East tensions were boosting prices.
Asian markets closed mixed. In Tokyo, Japan's benchmark Nikkei 225 index closed up 175.79 points, or 1.59%, at 11,204.49 led by exporter shares on the back of optimism over the U.S. economy.
But Hong Kong's Hang Seng index was off 154.88, or 1.40%, at 10,878.04.