It may have been Super Tuesday at the voting booth, but there was nothing super about Tuesday for stocks.
Major U.S. indexes plummeted after the U.S. services sector unexpectedly contracted in January and a Federal Reserve official said there is a possibility of a mild recession.
The Dow Jones Industrial Average plummeted 370 points, or 2.9%, its biggest one-day percentage drop in nearly a year. The Nasdaq skidded 73 points, or 3.1%, while the S&P 500 tumbled 44 points, or 3.2%.
Year-to-date, the Dow is down 8.7%, the Nasdaq 13% and the S&P 9%. (For a complete look at today's selloff, go to By the Numbers.)
The market was rattled by growing signs that the economy may already be in a recession, particularly the ISM nonmanufacturing index, which measures the services sector representing three-quarters of the U.S. economy.
"Nonmanufacturing has been the strength of the economy," Vince Farrell, managing director of Scotsman Capital, said on CNBC Tuesday, "and now you bring that under question." Services have been the strength of the job market, Farrell says, so keep a close eye on the next jobs report.
"The recession has indeed arrived," Jane Caron, chief economic strategist at Dwight Asset Management in Burlington, Vermont, told Reuters.
"European shares continued to slide for a second day after a report that service-sector growth in the euro zone fell to a four-and-a-half-year low in January, fueling concerns that the U.S. slowdown may be spilling over into Europe.
Asian stocks also extended their losing streak amid global-recession fears.
Another Downgrade for Financials
Goldman Sachs shares slipped after Oppenheimer downgraded its rating on the stock to "perform" from "outperform," citing valuation and other factors.
Downgrades on credit-card providers such as American Express and a slew of other financials dragged down the market a day earlier. Analysts are growing increasingly concerned that consumers are falling behind on their loan payments.
Technology stocks, which are seen as particularly vulnerable to a downturn in business and consumer spending, were mostly lower Tuesday.
Apple fared better than some of its tech counterparts after the company introduced new models iPods and iPhones with double the memory of previous versions.
Google advanced amid rumors that Yahoo might outsource its search function to Google and an announcement that Google is adding more business email security and storage products. The products build on technology acquired when Google bought email specialist Postini last year for $625 million, AP reported. The products are designed to weed out junk mail and viruses and prevent security breaches.
Some of the Google gain could be bargain hunting; the Internet giant is down 33 percent from its closing high of $741.79 on Nov. 6. For those of you keeping score, the stock is still up nearly 500% from its IPO price of $85.
Bespoke Investment Group noted on its blog (http://bespokeinvest.typepad.com/) that Google stock looks similar to Microsoft did when it was at the same stage in its corporate lifespan. After 871 trading days, Microsoft was up 458 percent; Internet giants Amazon and eBay were up nearly 1800 percent and Yahoo was up nearly 8,000 percent, the analysts noted.
"Twenty years from now, Google can only hope that it is up 43,000 percent from its IPO price like Microsoft currently is," Bespoke said.
Not to be outdone, Microsoft said it sent a major package of upgrades and fixes for Windows Vista to manufacturers for mass production on Monday.
Analysts Raise Price Target on Yahoo
Yahoo shares fell after Banc of America cut its rating on the stock to "neutral" from "buy" and raised its price target to $31 from $26. UBS and Citigroup also raised their targets on the stock, to $34 and $31, respectively.
Shares of business-software maker Oracledeclined as did blue chips Microsoft and Intel. Telecom-service providers AT&T and Verizon were among the biggest drags on the Dow.
In earnings news, oil giant BP reported that fourth-quarter replacement cost (RC), which strips out unrealized gains on fuel inventories, fell 24 percent to $2.97 billion. But BP's shares gained 1.8 percent in premarket trading after the company said it favored returning money to shareholders via dividends, rather than share buybacks.
The parent of the New York Stock Exchange, trans-Atlantic NYSE-Euronext , said its profit rose to $156 million, or 59 cents a share, compared with net income of $45 million, or 29 cents per share in the year-ago period -- before the merger with Euronext.
Whirlpool shares jumped after the appliance maker reported a 72 percent surge in its fourth-quarter profit, helped by its Maytag acquisition and the weak dollar. The company said that all of its branded products gained market share during the quarter.
Avon also advanced after the cosmetics company reported its profit dropped 30% in the quarter but beat analysts' estimates.
News Corp. , which closed a $5.6 billion deal to buy Wall Street Journal publisher Dow Jones in December, said quarterly profit rose just 1.2 percent to $832 million from $822 million a year earlier, in line with expectations. The company said the economic slowdown is not hurting its business. And, this quarter is on track for the media giant, which said it received $250 million in ad revenue for the Super Bowl, its best ever.
On Tuesday, News Corp. owner Rupert Murdoch said he won't make a bid for Yahoo.