The Dow Jones industrial average dropped 110.15 to 9,872.60, and the Nasdaq composite index closed down 5.26 to 1,935.97 after a brief spell in positive territory earlier in afternoon trading. The markets rose Monday as investors applauded news from Internet retailers that holiday spending was increasing and treated official word that the United States is in a recession as old news.
But investors changed their minds after a dour consumer confidence report Tuesday.
U.S. consumer confidence fell for the fifth straight month in November, according to a report from the Conference Board, a private business research group. The index fell to 82.2 in November, compared with a downwardly revised 85.3 in October. Economists had expected the index to rise to 87.9.
"A turnaround in confidence levels is not likely before year's end," said Lynn Franco, director of the Conference Board's Consumer Research Center, "nor are retailers likely to enjoy a blockbuster holiday season." Rising unemployment and continuing layoffs are weighing on confidence, Franco added.
The Present Situation Index, which measures current views of the economy, also plunged, falling to 93.5 in November from a revised 107.2 in October. The only good news came from the Expectations Index, which gauges consumers' outlook for the next six months. That index rose to 74.6 in November from 70.7 in October.
Analysts cautioned Monday that it was too soon to judge whether numbers from companies like Amazon.com and eBay indicate an improvement. But the drastic drop in consumer confidence took its toll. The confidence number is important because consumer spending makes up about two-thirds of the country's gross domestic product.
In more upbeat economic news, the National Association of Realtors reported that existing home sales rose 5.5 percent to an annualized rate of 5.17 million in October. It also revised September's home sales down slightly to a 4.9 million rate.
Among companies in the news, Tech Data beat estimates in its third quarter, despite slipping sales and earnings. The hardware and software distributor said its profits were 58 cents a share, beating First Call's estimate of 51 cents a share, but falling steeply from earnings of 82 cents a share last year. Revenue fell to $4.2 billion from $5.2 billion last year, led by declines in networking and peripherals sales. Shares were up $3.89, or 10 percent, to $43.91.
Infineon Technologies was down 38 cents to $20.82 after the German chipmaker won another round of its legal dispute with memory chipmaker Rambus.
A judge issued an injunction that bars Rambus from asserting its patents against Infineon for SDRAM (synchronous dynamic random access memory) and DDR (double data rate) SDRAM chips. Rambus shares slid 68 cents, or 6 percent, to $9.41.
Nokia fell $1.52, or 6 percent, to $23.72 after announcing that it sees lower revenue for the first quarter. The mobile phone maker said it was comfortable about reaching its fourth-quarter overall targets and said it expected sales growth of 15 percent and good profitability for 2002.
But the company also pushed back the date for its projected 25 percent to 35 percent sales growth to the fourth quarter of 2002 at the latest. Earlier it had said it expected to reach this sometime during 2002.
Ericsson shares were also hit by the news, falling 19 cents, or 3 percent, to $5.67.
Level 3 Communications shares spiked up 88 cents, or 15 percent, to $6.58. The company announced new, multiyear agreements with America Online under which AOL will purchase Level 3's technology and services in North America and parts of Europe.
Red Hat shares were also soaring, up $1.61, or 27 percent, to $7.62 after the distributor of Linux software said that it agreed to service the alternative operating system for IBM's servers. IBM shares lost $2.13 to $114.20.
Among other actively traded shares, Cisco Systems fell 23 cents to $19.70; Intel rose 44 cents to $32.31; Oracle fell 32 cents to $14.42; and Microsoft lost $1.40 to $63.74.
Internet stocks gave back Monday's gains after the consumer confidence numbers raised doubts that their reports of strong online sales would hold up over the holiday season. Amazon lost 73 cents, or 6 percent, to $11.48; AOL Time Warner lost 61 cents to $36.76; and Yahoo lost 67 cents to $17.40.
Reuters contributed to this report.