Responding to negative news from Lucent Technologies and Motorola, as well as to a Yahoo earnings report Tuesday that met expectations but raised concerns about growth, the Nasdaq lost more than 130 points soon after the opening bell. The Dow Jones industrial average was down more than 150 points.
The Nasdaq briefly rallied into positive territory but failed to maintain the momentum, closing down 72.05 at 3,168.49--a few points shy of setting a new low for the year. The Standard & Poor's 500 index fell 21.35, or nearly 2 percent, to 1,364.59.
The Dow Jones industrial average lost 110.61 to 10,413.79, led by Alcoa, which fell $2.44 to $27.19.
More than two stocks declined for every one that climbed on the Nasdaq and the New York Stock Exchange. Nasdaq volume topped 2.34 billion shares, the fourth heaviest day ever for the index.
Of the 18 sectors tracked by CNET Investor, telecom equipment companies posted the largest declines, sinking nearly 8 percent. Internet retailers and content companies followed closely behind with 6 percent drops. Computer data-storage companies climbed 1 percent.
The CNET tech index lost 89.50 to close at 2,543.02. Losers outnumbered winners 2-to-1, with 73 of the 97 stocks in the index falling and 24 rising.
Investor jitters were caused by more disappointing earnings announcements, which have rattled the markets for the past several weeks.
Lucent Technologies on Tuesday added itself to the list of technology companies stepping forward with bad financial news when it warned it would report lower-than-expected fourth-quarter profits.
"We're getting down to the bone here," said analyst Jeff Logsdon of Gerard Klauer Mattison.
Logsdon said the market regards warnings from overvalued concept stocks as normal. However, when large companies such as Intel and Eastman Kodak also warn, investors worry that there may be some fundamental problems.
The Lucent news and disappointing forecasts from chip and wireless-handset maker Motorola were just the latest in a string of earnings disappointments that have helped drive down the Nasdaq nearly 25 percent since the beginning of September.
"As a result, people are wondering where the Nasdaq is going to hold," said Bob Stoval, a market strategist at Prudential Securities. Investors "are selling as hard as they can," he said.
Wednesday, shares of Lucent fell $10.13, or 32 percent, to $21.25. The shares traded as high as $84.18 in the past year.
Lucent was hit with a series of downgrades Wednesday morning. Of the 25 analysts who issued changes to their recommendations, 15 were lowered to a "hold" from a "buy," according to a First Call representative. Six analysts dropped their recommendations to a "buy" from a "strong buy." Twenty-nine analysts follow the company.
ING Barings, ABN AMRO and Josephthal & Co. cut their ratings to "hold," while Credit Suisse First Boston and Williams Capital dropped the company to "buy." C.E. Unterberg Towbin cut its rating to "neutral" and Morgan Stanley Dean Witter cut its rating to "outperform."
A consensus of analysts lowered earnings estimates to 21 cents a share for the fourth quarter, with the range spanning 17 cents to 29 cents, according to First Call. Prior to Tuesday's warning, analysts had expected the company to report 27 cents a share.
Analysts' expectations for Lucent's fourth quarter have dropped dramatically since July, following the company's first warning. Analysts then were forecasting earnings of 40 cents a share.
Michael E.Ching, an analyst with Merrill Lynch, took issue with the company's lower-than-expected profit margins, which he believes reflects reduced growth in key markets.
"We believe that the lower-than-expected gross margins reflect an unfavorable optical-systems product mix and weaker circuit-switching software sales," Ching wrote. "The company is also increasing its reserves for bad debt due to credit concerns with several emerging service providers."
Shares of Yahoo dropped $17.31, or almost 21 percent, to $65.38. The shares traded as high as $250 in the past year.
Although Yahoo beat Wall Street's estimates Tuesday by one penny, analysts focused on concerns about slowed growth for online advertising.
Analysts on Wednesday had mixed responses to Yahoo. SG Cowen Securities and First Union Securities cut their ratings on Yahoo to "neutral" and "buy," respectively. U.S. Bancorp Piper Jaffray and Pacific Crest reiterated "strong buy" and "buy" ratings, respectively, while Prudential Securities raised its rating on Yahoo to "strong buy."
In his research note Wednesday, Merrill Lynch analyst Henry Blodget highlighted a "challenging advertising environment," which could cause Yahoo's stock to "essentially trade sideways through early next year."
Blodget slightly raised his revenue estimates to $1.45 billion from $1.41 billion. He said he would not raise bottom-line estimates, however, citing the existing environment for online advertising.
Shares of DoubleClick also sank to a new low on concerns about the growth of Net advertising. Its shares tumbled to an intraday 52-week low of $19, compared with a high of $135.25. The shares rebounded slightly to close at $21.19, down $3.50.
DoubleClick, an Internet advertising company, is expected to announce earnings Thursday after the markets close. Analysts polled by First Call/Thomson Financial expect the company to earn 3 cents per share.
Among other stocks that were punished today, Motorola fell $4.75, or 18 percent, to $21.50.
In a conference call Wednesday morning, the wireless phone and chipmaking company said it expects fourth-quarter and 2001 earnings to fall short of analyst estimates. The company said it expects the global chip industry to grow at a slower pace in 2001 than it did this year.
Tuesday, Motorola announced earnings of 26 cents per share, meeting Wall Street's expectations.
Morgan Stanley Dean Witter and ABN AMRO both downgraded Motorola to "outperform," and First Union cut its rating to "market perform."
News.com's Dawn Kawamoto contributed to this report.