Tech Stocks Drive Broad Market Down

NEW YORK – Technology issues led stocks lower Tuesday amid a dearth of upbeat corporate outlooks to push up the market, which had rallied in recent months from 3-year lows.

Kmart Corp. kept worries alive that Corporate America has some struggles ahead after the discount retailer filed for Chapter 11 bankruptcy protection.

The Dow Jones industrial average slid 58.05 points, or 0.59 percent, to 9,713.80, while the technology-laced Nasdaq Composite Index fell 47.81 points, or 2.48 percent, to 1,882.53, carving out a two-month closing low. The broader Standard & Poor's 500 Index slipped 8.27 points, or 0.73 percent, to 1,119.31.

"The earnings outlook continues to show zero visibility for the next six months," said Keith Gertsen, head of Nasdaq trading for Deutsche Banc Alex. Brown. "There's still a lot of ambiguity and people want visibility to be strong."

"There's just not enough good news to push the market higher," said Brian Pears, head of equity trading at Victory Capital Management. "Our attention is focused on looking forward and we don't have a lot of guidance out of today's releases. Until we get a better grip on that, the trend is likely to be lower."

Stocks of computing firms such as International Business Machines Corp. and related issues bore the brunt of the selling after Merrill's chief U.S. strategist said the technology sector is selling at its highest valuation in about 18 years. This raised a red flag to investors who have bid the tech-rich Nasdaq up more than 32 percent since late September.

Amazon.com Inc. jumped $2.44 to $12.60 and was among the most active stocks traded on Nasdaq. The Internet firm posted a first-ever net profit that topped even the most optimistic expectations. Strong turnout from holiday shoppers fueled a 15 percent rise in sales at the online superstore.

Conglomerate Tyco International Ltd. climbed $1.10 to $47.55. It was the most-active stock traded on the New York Stock Exchange after saying it plans to split into four independent, publicly traded companies. Tyco's chairman said the plan could make Tyco's shares worth about 50 percent more than current valuations, citing a Wall Street analyst's study.

Kmart fell $1.05 to 69 cents after it filed for Chapter 11 bankruptcy protection amid stiff competition from rival Wal-Mart Stores Inc. and others. Wal-Mart, a Dow stock, gained $1.66 to $58.01 after Sanford Bernstein retail analyst Emme Kozloff raised her investment rating on the company, saying it will gain market share if Kmart files for bankruptcy.

"This Kmart thing has thrown some cold water on us. We're not anywhere near to the end of the bad times. We have to lower expectations a bit," said Cummins Catherwood, managing director for Rutherford Brown & Catherwood, which oversees $700 million.

Network computing giant Sun Microsystems Inc. led the decline on the Nasdaq with a loss of 9.57 percent, or $1.16, to $10.96. Traders said A.G. Edwards issued a report raising concern about Sun's shortfall in profits. Friday, Sun reported its third-straight quarterly loss as it took a large charge for job cuts and restructuring.

IBM fell $3.75 to $110.50 on the New York Stock Exchange, pressuring the Dow. The S&P Computer Hardware index lost 4.38 percent, reflecting losses in computer makers.

"Technology valuations, which were never terribly conservative to begin with, are now clearly stretched to bubble-like levels even on a relative basis," said Richard Bernstein in a note. "We think investors should be booking any technology sector gains, and reallocating the funds toward drug stocks."

But drugs stocks are trading at their cheapest levels in about 37 years, based on trailing earnings, Bernstein said, adding that investors should buy into the sector. The American Stock Exchange pharmaceutical index rose 1.50 percent.

NCR Corp. , a maker of large computer systems, said earnings fell due to lower revenues from its database and retail automation products. Shares skidded 7 percent, or $2.96 to $39.30 on the New York Stock Exchange.

Business-to-business software company Ariba Inc. posted a quarterly loss, before charges, versus a year-ago profit and said its revenues fell due to the weak U.S. economy. Shares fell more than 12.79 percent, or 87 cents, to $5.93.

Some market watchers said that at this point, the important thing was not fourth-quarter results, but outlooks for the current quarter and beyond, and Wall Street was not getting much good news.

Stocks have rallied briskly from 3-year lows set in September as investors bet that the U.S. economy will in coming months turn the corner and corporate profits will rebound.

Cyberonics Inc. fell $16.39 to $12.83, topping the list of Nasdaq laggards. The medical device maker said a study on a therapy for recurrent depression found no significant difference from a group treated with placebo.

On a technical front, the Nasdaq was trading well below its 200-day moving average. On Friday, the Nasdaq closed for the first time this year below the closely watched average, which plots an index's trend over the intermediate to long term.

This moving average is calculated by adding closing prices of component stocks over the last 200 sessions and dividing the outcome by 200. When an index significantly undercuts its 200-day average that usually is seen as bearish by technical analysts.

Declining issues led advancers nearly 4 to 3 on the New York Stock Exchange. Volume came to 1.30 billion shares, compared with 1.33 billion shares Friday. U.S. markets were closed Monday for the Martin Luther King Jr. holiday.

The Russell 2000 index lost 4.93 to 469.44.

Overseas, Japan's Nikkei stock average fell 2.2 percent. In Europe, Germany's DAX index dropped 0.5 percent, Britain's FT-SE 100 gained 0.2 percent, and France's CAC-40 advanced 0.5 percent.

Reuters and the Associated Press contributed to this report.