Today's Market: Dow, Nasdaq Both Steeped in Red

(Updated from 9:56 a.m.)

Profit warnings from PC-maker Gateway((GTW Quote) and specialty chipmaker Altera(ALTR Quote) after the market closed yesterday shot an arrow right through the Nasdaq's heart.

The Dow Jones Industrial Average was down 89 to 10,540. The Nasdaq Composite Index was off 89 to 2618. And the S&P 500 moved 17 lower to 1325.

Wounded Gateway Facing a Turkey Shoot Thursday

Altera Slammed in After-Hours Trading Over Revenue Warning

Legg Mason's Miller Was Cowed by Gateway, and Got His Bell Rung

Wake Up and Smell the Losses

The analysts piled on the stock-slaughtering wagon in an oh-so-timely fashion this morning. Lehman Brothers lowered its EPS estimates on Altera and its EPS estimates and price target on Gateway. Lehman also downgraded telecommunications chipmaker PMC-Sierra(PMCS Quote). Merrill Lynch, Deutsche Banc Alex. Brown, UBS Warburg and Robby Stevens also downgraded Altera. And Bear Stearns and Robby Stevens made bearish calls on specialty chipmaker Xilinx(XLNX Quote).

Tech stocks have been descending further and further into hell over the past month, breaking through support levels with nary a look back and hitting new 52-week lows. Since last Friday, the Nasdaq has unsuccessfully tried to stage a comeback.

Gateway was one of the last survivors in the personal-computer sector. In the most disappointing quarter of earnings this year, computer leaders and several of the major chipmakers have dropped bomb after bomb on tech investors -- warning that earnings and revenues will not meet targets as the economy slows. But as the last standouts fall like toy soldiers, some market pundits are hoping this may be the bitter end -- that the bad news is all out; the selling can't get any worse; a bottom is finally near; and that the market will have to turn around soon. But that's been said before.

After the closing bell yesterday, computer-maker Gateway warned that it anticipates fourth-quarter sales and profits to come in sharply below Wall Street's forecasts. "The economic slowdown, coupled with ongoing shifts in PC seasonality, clearly had a significant impact on our sales over the holiday weekend. We expect these issues will continue to have an effect on overall demand in the next 12 to 18 months," Gateway said in a statement. The company also lowered its full-year earnings guidance for 2001 to $1.89 a share from $2.28 a share. TheStreet.com analyzed Gateway's news in a separate story. Gateway was 36% lower.

As the wave of nasty earnings surprises and analyst downgrades have swelled to tsunami proportions, investors have begun to lose faith in corporations' ability to meet their earnings targets -- and in the market's ability to climb out of this deep, dark hole. Even many of the brave hearts haven't been up to buying on the dips anymore. And without any buyers to prop tech stocks up, attempt after attempt at a rally folds in on itself like a house of cards.

Some proof of this loss of faith might be found in recent consumer confidence levels, which are at their lowest in more than a year. Yesterday, the Conference Board reported that the consumer confidence index fell to 133.5 in November, down slightly from 135.8 in October, but a sharp drop from the record high of 144.7 reported in May. The drop came as a surprise to analysts surveyed by Thomson IFR, a financial research firm. They had expected the index to rise to 138 this month.

But while the Nasdaq is drowning at ever new 52-week lows, the blue-chip Dow is well above its lows for the year, which were hit in February.

There is, at least, a dim light at the end of this tunnel. While the slowing economy is to blame for slowing corporate earnings, yesterday's preliminary third-quarter gross domestic product numbers have some people convinced that an easing in the Fed interest-rate policy could be on the horizon. The report showed the economy in the third quarter grew at its slowest pace in four years.

In a report yesterday, UBS Warburg said the GDP number led them to believe that "very soon, the federal reserve system will stop stating that risks are skewed towards higher inflation vs. slower growth." A change in that outlook is a first step toward a possible cut in interest rates -- the soonest that could come would be at the Fed's Dec. 19 meeting. It's lower rates, after all, that stimulate economic growth. Some pundits think a change in the Fed's bias is the only thing that can turn this market around.

The other good news is that the beleaguered euro, which has hurt profits at some multinational companies in recent months, is beginning to recover as evidence grows that economic growth is slowing more in the U.S. than in the euro region. Following yesterday's GDP report, the euro rose to a three-week high against the dollar.

There was a big jump in jobless claims last week, which hit 358,00 for the week ended Nov. 25. That's their highest level since 384,000 during the week of July 4, 1998. The latest report shows that the tight labor market might be loosening. It's record unemployment that has been sustaining fears about inflation. Meanwhile, U.S. October personal income came in at a 0.2% drop vs. forecasts of a 0.2% rise, while personal spending hit a 0.2% rise for the month. Economists polled by Reuters were expecting a 0.3% rise in personal spending.

And while it's not a major market-mover, the November Chicago Purchasing Manager's Index fell to 41.7, showing contraction in the factory sector. The Chicago PMI, which measures activity in manufacturing, is considered a good predictor of the National Purchasing Manager's Index, which is a timely and market-moving number that will be released tomorrow. Economists polled by Reuters were forecasting 48.9 vs. the previous month's 48.7. The figure signals expansion when it is above 50 and contraction when below it.

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Bonds/Economy

Bond prices were rising again this morning following the jobless claims and personal consumption numbers. The benchmark 10-year Treasury note was up 7/32 at 101 26/32, yielding 5.505%.

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International

European markets were shaken from the get-go by Gateway's warning last night, and the dire consequences it would have for tech stocks in the U.S. London's FTSE was off 63.40 to 6101.50 as it neared its midsession.

Across the channel, Paris' CAC-40 was down 124.96 to 5935.69, while Germany's Xetra Dax was off 137.39 to 6460.93.

The euro was rebounding at $0.8691.

Asian markets were mixed overnight. Japan's Nikkei 225 rose 140.87 to 14,648.51, while the Hong Kong's Hang Seng lost 184.67 to 13,984.39.

The greenback was getting 110.83 yen.

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