Preopen Trading: Nortel, Dell Cut Futures Off at the Knees

(Updated from 7:25 a.m.)

Thanks a lot, Nortel (NT). You ruined the whole wide world.

Last night, the networking equipment company announced that profits would not improve much until the fourth quarter. And Nortel didn't just say this about itself, it said this about the whole American economy, telling investors that the slowdown was "faster and more severe" than it -- or anyone else -- expected. This comes just one day after Ciena (CIEN), a competitor in the networking equipment space, announced that it would see no significant downturn in sales and profit due to the slowing economy.

The Ciena news kicked off a much-needed rally here in the States. Both the Dow Jones Industrial Average and Nasdaq Composite Index posted nice gains Thursday, but that seems rather unlikely to occur today. Judging from futures, overseas trading and additional warnings from tech's biggest names, in this case a pair of warnings from Hewlett-Packard (HWP) and Novell (NOVL), markets will be dragging.

S&P 500 futures on Globex, an electronic exchange where futures and currency options trade, slid 10.6 to 1330.6. That's really a drop of about 8 from fair value, a number that reflects the correct technical relationship between the S&P 500 index futures and the S&P 500 itself. Nasdaq 100 futures dropped 56 to 2300. But that's actually a loss of about 81 from fair value, because Thursday's action increased the spread between futures and the Nasdaq 100 index.

Schering-Plough (SGP) announced that a probe by the Food and Drug Administration of its manufacturing processes and quality control procedures will result in lower first-quarter and full-year revenue and earnings. Two factories, one in Puerto Rico and one in New Jersey, were found to have "deficiencies concerning compliance with current good manufacturing practices." The news hit Schering-Plough, which was lately off 21.4% in preopen trading, and other pharmaceutical companies.

The Nortel news didn't just sideswipe futures, though. It crushed a would-be rally in Japan and wreaked havoc on Europe.

London's FTSE slid 71.2 to 6126.7, as telecommunications companies continued to get creamed in the wake of last week's failed attempt to float shares of telco Orange. Between the Nortel warning and recent troubles in Lucent (LU), telecommunications has faced much adversity lately. Frankfurt's Xetra Dax dropped 72.5 to 6519.2. The Parisian CAC-40 dropped 63.2 to 5641.4.

Over in Asia, markets were disappointed by the Nortel news, which came out after the trading day yesterday. Usually, Japan's Nikkei would have rallied, because the Nasdaq Composite rallied. Japanese trading tend to follow what occurs here. But Nortel's warning ruined that rally and the Nikkei fell 151.9 to 13,175.5. Hong Kong's Hang Seng slid 126.1 to 15,630.3.

To find out more about international markets, see our global indices.

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For Thursday's postclose trading, see The Night Watch.

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