Nasdaq Suffers Biggest Point Drop Since September 2001

Well, this should give everyone something to talk about in Las Vegas.

On the eve of the 2008 edition of the Consumer Electronics Show, the tech industry’s biggest trade show, the technology sector today suffered its single-worst stock market day in years. The Nasdaq Composite dropped 98.03 points, or 3.77%, to 2504.65, near its lowest levels for the day. That was the worse one-day percentage drop since March 17, 2003 - and the biggest one-day drop for the Nasdaq in terms of points since September 17, 2001, the day trading resumed after the 9/11 attacks on the World Trade Center and the Pentagon.

There are plenty of reason for the huge drop; the bottom line is that the odds of a recession appear to be rising. As I noted earlier, the biggest catalyst for today’s sell-off seems to be the latest jobs data: Nonfarm payrolls rose 18,000 in December, the worse month for job creation since August 2003. The unemployment rate rose to 5.0%, the highest level since November 2005. As I noted yesterday, Monster.com (MNST) reported the biggest-ever one-month drop in its online recruitment index in December.

Contributing to the pressure on tech stocks today: the J.P. Morgan downgrade of Intel (INTC), the second analyst rating cut on the stock this week. As noted earlier, Morgan said the cut was spurred by indications that PC demand weakened late in the fourth quarter. Another factor could be the disappointing guidance from Micrel (MCRL), which cited weakness in demand from the wireline communications and cellular handset sectors. PC related stocks were especially hard hit in today’s sell-off.

I also wonder if there was some disappointment with the results of yesterday’s election, in particular the second-place finish by Mitt Romney, a former venture capitalist who has the support of many both on the Street and in the Valley. I’ll leave the political punditry to someone else, but investors may have reached the conclusion that we could very well be headed for a Democrat in the White House in 2009.

The Nasdaq Composite is now down 5.6% year-to-date - in three days, in other words. For the holiday-shortened week, the Nasdaq dropped 6.3%. The index is at its lowest closing level since August.

The huge drop, the new worries about the health of the PC sector, and the concerns about recession raise a host of questions.

• What happens to consumer electronics sales in a recession?
• What happens to enterprise technology spending?
• How will the tech sector’s more robust segments - handsets, notebooks, LCD televisions, GPS receivers, Internet advertising - fare if the economy heads south?
• If the U.S. slides, will demand in emerging nations like China and India stay strong?
• Given that tech held up better than the rest of the market in 2007, is the sector in danger of suffering more in 2008?

There are no shortage of questions.

To give you a sense of just how widespread the damage was today, consider this list:

• Google (GOOG) fell $28.33, or 4.1%, to $657.
• Apple (AAPL) fell $14.88, or 7.6%, to $180.05.
• Research In Motion (RIMM) fell $9.47, or 8.4%, to $103.35.
• Amazon (AMZN) fell $6.42, or 6.7%, to $88.79.
• Microsoft (MSFT) fell 99 cents, or 2.8%, to $34.38.
• Cisco (CSCO) fell 63 cents, or 2.4%, to $26.12.
• Intel (INTC) fell $2, or 8.1%, to $22.67.
• VMware (VMW) fell $3.46, or 4.1%, to $80.49.
• NetSuite (N) fell $2.95, or 8.5%, to $31.69.
• IBM (IBM) fell $3.77, or 3.6%, to $101.13.
• Hewlett-Packard (HPQ) fell $2.78, or 5.6%, to $46.87.
• Dell (DELL) fell $1.62, or 6.8%, to $22.09.
• Advance Micro Devices (AMD) fell 52 cents, or 7.7%, to $6.25.
• Nvidia (NVDA) fell $2.75, or 8.4%, to $30.
• Seagate (STX) fell $1.20, or 4.9%, to $23.31.