The tech-heavy Nasdaq fell 6.17 percent and the Dow dropped 2.99 percent Tuesday after a slew of profit warnings and concerns that first-quarter earnings reports will be bad. Though the markets edged off the day's lows by closing time, investors had little reason to be optimistic.
"It's harsh because of the reality of deteriorating market conditions," said Bruce Bartlett, head of growth investing at Oppenheimer Funds. "There is a feeling that this will be protracted and longer than people were expecting."
At the end of the day, the major indexes were heavily in the red. The Nasdaq was out 109.97 points, or 6.17 percent, to 1673. The Dow fell 292.22 points, or 2.99 percent, to 9485.71. The S&P 500 dropped 39.41 points, or 3.44 percent, to 1106.46. The Industry Standard 100 fell 38.14 points, 11.64 percent, to 289.56.
As if poor company earnings reports weren't enough to rattle investors Tuesday, political tension between the US and China shook traders even harder.
"When the fundamentals are as weak as they are, the psychological aspect can have a very pronounced effect," Bartlett said. "Sentiment is negative, and it is easy to make it even more negative."
After market close Monday, a slew of new companies warned about their earnings. Among them, business-to-business software maker Ariba (ARBA) , which fell 31 percent. Optical networking company Redback Networks. (RBAK) also said it would miss expectations, and investors punished it Tuesday. Shares were off 16.5 percent.
But the carnage wasn't contained to the companies and their sectors. The paranoia spread through the entire market, and big caps led the plunge. Nasdaq volume leader Cisco Systems (CSCO) ended down $1.31, or 8.71 percent, to $13.75. On the NYSE, it was EMC Corp. (EMC) that led the charge downward because of lowered expectations. The software maker fell $4.11, or 14.02 percent, to $25.20.
Internet heavyweights were battered as well. EBay fell 13.1 percent, Yahoo (YHOO) dropped 18.75 percent, AOL Time Warner (AOL) dipped 8.8 percent and Amazon.com (AMZN) fell 5.16 percent.
But semiconductor stocks seemed shielded from the broader pain of the technology market, if only relatively. Intel . (INTC) dropped 3.09 percent, Altera . (ALTR) fell 4.93 percent, Xilinx (XLNX) lost 5.09 percent, Advanced Micro Devices (AMD) shed 7.14 percent and National Semiconductor (NSM) fell 0.25 percent. Semiconductor equipment leader Applied Materials. (AMAT) actually gained 0.31 percent to close at $40.13.
Adding to the marketplace uncertainty was conflicting economic data released Tuesday. One set of data suggested that the health of the manufacturing sector was increasing. At the same time, another report said the chance of a recession is increasing.
A decline in inventories for the manufacturing sector could signal that the ravaged sector is poised for a turnaround. US factory orders were down 0.4 percent in February, compared with 4.3 percent in January, according to a Department of Commerce report issued Tuesday morning. Inventories, on the other hand, fell 0.1 percent during February, while increasing 0.5 percent the previous month.
However, the Chicago Federal Reserve announced that its index of the US economy was at -0.89 in February, something that economists took as an increased sign of a recession.
The data follows the release of confusing numbers last week, which said that consumer confidence was up for the first time in five months and that consumer spending was increasing. At the same time, durable goods orders fell. Economists are looking to the non-farm payroll numbers to be released Friday to determine the health of the services market, which has been growing despite the fallout in the manufacturing sector.