Friday's Market: Microsoft Domino Topples Stocks; Dow Sells Off Steeply

The Dow lost 240 points today, wrapping up a week that saw a short-lived Bush bounce and a slew of warnings.
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Sure, we're still a week away from the holidays, but shouldn't there be some seasonal cheer out there?

It's been a nasty day for the major indices, with the

Dow Jones Industrial Average suffering 200-plus losses, the

Nasdaq Composite Index sliding further below 3000 and the

S&P 500 finishing the day at its low for the year.

Microsoft's

(MSFT) - Get Report

not-so-cute

post-close warning yesterday was the scapegoat. The software giant warned that it would miss estimates and reduced its expectations for revenue and earnings per share by 5% to 6% from prior guidance. Often after a warning, analysts release negative notes on the guilty party. Earlier today,

Goldman Sachs

did just that, cutting Microsoft's 2001 earnings outlook.

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Microsoft said that one of the factors affecting it was lower PC sales. (We've heard that before -- from

Dell

(DELL) - Get Report

,

Apple

and

Compaq

(CPQ)

, to name a few.) The

Philadelphia Stock Exchange Computer Box Maker Index

got socked by the news, falling 3%.

On the heels of that, Goldman cut 2001 earnings estimates on

Hewlett-Packard

(HWP)

, which has maintained its earnings guidance, but was nonetheless downgraded by

Bear Stearns

last week.

Sun Microsystems

(SUNW) - Get Report

and

EMC

(EMC)

both got knocked down after Bear Stearns downgraded the two Internet equipment suppliers because of a slowdown in corporate IT spending.

But not everything was bad in tech land. Another software- maker,

Oracle

(ORCL) - Get Report

, as well as

Adobe

(ADBE) - Get Report

,

Red Hat

(RHAT)

and

CMGI

(CMGI)

, all issued better-than-expected earnings reports. Oracle and Adobe bounced on the news, while Red Hat and CMGI tumbled a bit.

Oracle, which is the No. 2 software maker behind Microsoft, easily beat estimates, getting a nice boost off its rival's misery. For more on the battle between Larry Ellison and Bill Gates, check out

this story published earlier today by

TheStreet.com

.

Elsewhere,

Polaroid

(PRD)

was feeling pressure after its chairman said it might have to tack on some restructuring charges next year if holiday sales were disappointing. It dropped 9.6% to $6.50.

General Electric

(GE) - Get Report

was the most actively traded stock on the NYSE of late. It was down 3.2% to $49.81. The company announced that it had to expand its recall of potentially hazardous dishwashers. Oh, and GE raised its quarterly dividend by 17% today.

Not a lot of areas of safety today on the Dow, with

3M

(MMM) - Get Report

doing its part to hold up the blue-chip index.

J.P. Morgan

(JPM) - Get Report

, which had gotten a nice boost from

Greenspan's hints earlier in the week, only to get knocked down by its own profit warning, pulled out a nice end-of-the-day rally. It was 1.3% higher to $160.

Chris Dickerson, analyst at

Global Market Strategists

, said his company has software that analyzes seasonal trends and that software determined that today was going to be a down day.

He said also from a seasonal analysis that the high put/call ratios today are an indication that the market is going to come to a resolution and the market is hitting a second bottom.

"The market's pricing in a slowing economy. It's almost the job or role of the market to be forward looking," Dickerson said, adding that it still always overshoots either way and that maybe this time it overshot to the downside.

So, now all signs point to a rally into the end of the year. He said there's a pile of money on the sidelines, which will start moving in. We'll definitely see some defensive buying, not necessarily in Old Economy stocks, but fund managers buying stocks and pushing them up to make their bottom line look good at the end of the year.

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Market Internals

Breadth was negative on heavy volume.

New York Stock Exchange: 1308 advancers, 1601 decliners, 1.6 billion shares. 116 new 52-week highs, 99 new lows.

Nasdaq Stock Market: 1379 advancers, 2513 decliners, 2.6 billion shares. 30 new highs, 327 new lows.

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Most Active Stocks

NYSE Most Actives

  • General Electric: 35.1 million shares.
  • EMC: 34.5 million shares.
  • Nortel Networks (NT) : 33 million shares.

Nasdaq Most Actives

  • Microsoft: 158.7 million shares.
  • Oracle: 115.4 million shares.
  • Sun Microsystems: 112.4 million shares.

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Sector Watch

There aren't a lot of places to hide today. Gold, anyone?

The

American Stock Exchange Natural Gas Index

, up 2.6%, was rallying after it was announced that U.S. natural gas liquid producers would be cutting their output this month to benefit from the high gas prices. One of its components,

Enron

(ENE)

, named a new CEO earlier this week. Today, the company announced that

Azurix

(AZX)

, a water-services company it controls, agreed to a buyout plan from Enron. Enron was up 1.4% and Azurix was lifted 31.6%. For more, check out

TSC's

separate story on the

buyout.

Oil-related stocks also were bouncing today, with the

Philadelphia Stock Exchange Oil Service Index

2.5% higher.

The

Philadelphia Stock Exchange/KBW Bank Index

fell 1.8%.

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Bonds/Economy

Treasury note and bond prices have recovered from a hotter-than-expected inflation report, thanks to the weakness in stocks, which suggests investors believe the economy will continue to weaken. The gains were dropping most Treasury yields to new lows for the year.

The benchmark 10-year

Treasury note, down as much as 6/32 earlier, was up 9/32 at 104 9/32, dropping its yield to 5.18%.

The

Consumer Price Index

(

definition |

chart |

source

), showed that prices of key goods and services rose more than expected in November.

The core CPI, which measures the prices of goods and services excluding food and energy -- the prices of which are volatile -- rose 0.3% in November. Economists polled by

Reuters

had forecast a 0.2% rise, on average. The annual growth rate of the core CPI rose to 2.6% from 2.5%, matching its highest level of the year.

Consumer prices of all goods and services, including food and energy, rose 0.2% in November, in line with economist expectations. The annual rate of increase held steady at 3.4%.

In other economic news,

industrial production

(

definition |

chart |

source

) unexpectedly fell in November, providing additional evidence of economic weakness, which stokes demand for bonds. Industrial production fell 0.2%. Economists had forecast that it would be unchanged on average.

As production fell, the capacity utilization rate, which measures anti-inflationary slack in the industrial sector of the economy, found more of it. The rate fell to 81.6%, the lowest since November 1999.

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International

European markets followed American markets lower as pressure built on technology and banking. The picture wasn't good at the end of the European trading day. London's

FTSE

was off 88 to 6176. While on the Continent, the Paris

CAC

dropped 66 to 5840, and Germany's

Xetra Dax

fell 139 to 6331.

The euro, which has been a rockin' and a rollin' lately, was lately at $0.8960. That's a three-month high, with the euro looking to crack the 90-cent barrier, a level it's found difficulty attaining.

Asian markets were trading when the Microsoft warnings ran across the tape and faced a tsunami of selling. Japan's

Nikkei 225

dropped 374. 90 to 14,552.29, while the Hong Kong

Hang Seng

slid 521.46 to 14,975.53.

The yen lately traded at 112.49.

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