Stocks Plunge As Service Sector Sinks

The stock market had its worst day in a year on Tuesday after a report on the U.S. services sector indicated that the economy may already be in a recession.

The Institute for Supply Management’s non-manufacturing index fell to 41.9 last month, 12 points lower than December and 11 points lower than economists expected — and also below the break-even 50 level, suggesting economic contraction.

The report — the weakest services sector reading since October 2001 — was disturbing enough to send major stock indexes plunging by 3%.

Cisco was down 2.4% a day ahead of its earnings report. Analysts expect Cisco to report a 16% sales gain to $9.8 billion and earnings of 38 cents a share, according to Thomson Financial. Of particular concern will be the health of the U.S. corporate sector, which was the one major weak spot in Cisco’s November earnings report.

Google finally managed to arrest its decline, rising 2%.

NetScout and Perot Systems managed solid gains, but SiRF lost half its value on its earnings report. Rainmaker Systems plunged 41% after the loss of a major client.

AMD fell 9% on negative analyst comments.

JDS Uniphase was a bright spot in after-hours trading, soaring 19% after beating estimates.

The Nasdaq tumbled 73 to 2309, the S&P fell 44 to 1336, and the Dow plunged 370 to 12,265. Volume rose to 4.3 billion shares on the NYSE, and 2.5 billion on the Nasdaq. Decliners led by a 27-6 margin on the NYSE, and 23-6 on the Nasdaq. Downside volume was 92% on the NYSE, and 92% on the Nasdaq. New highs-new lows were 20-76 on the NYSE, and 41-104 on the Nasdaq.