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Market Update: Big Downgrades Add to Dow, Comp's Post-Fed Selloff

<LI>Rumors fly about Sun, Yahoo!, which haven't warned.</LI><LI>Foundry Networks, Jabil Networks warned post-close yesterday.</LI><LI>Nasdaq now 50% off its highs for the year.</LI>

The sky began falling at the open this morning, with the

Nasdaq and the

Dow plunging into a deep, red sea of losses. But some traders felt yesterday's selling left the indices oversold and were hoping for a bit of snapback. Stocks were lately making a bit of belabored comeback.

After dropping to a low of 2376, the Nasdaq was lately wading at about 2400. The Dow initially fell to 10375.81, but recently was trading slightly higher.

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Yesterday the Nasdaq broke through a previous support level of 2523, hitting a new 52-week low. Support levels often act as psychological safety nets for stocks. But once a safety net is trashed, stocks often forge out in search of new lows.

The Nasdaq broke through the first of those -- 2450 -- right after the opening bell. But it hadn't succumbed to 2350, the next level of support for which traders are watching.

Nothing in tech was being spared this morning, and losses were spread throughout the PC-making, networking, Internet, semiconductor and biotechnology stocks. Networker

Cisco

(CSCO) - Get Report

was the most actively traded stock on the Nasdaq this morning after being downgraded by

Merrill Lynch

to accumulate from intermediate-term buy. Cisco has been hitting new 52-week lows for a few weeks. In fact, some 530 Nasdaq stocks were hitting new 52-week lows, among them networking-computer maker

Sun Microsystems

(SUNW) - Get Report

and software king

Microsoft

(MSFT) - Get Report

.

PC-makers

IBM

(IBM) - Get Report

and

Hewlett-Packard

(HWP)

, which were also downgraded by Merrill Lynch, were both losing about 4%. Merrill cut its ratings on the stocks to neutral from near-term accumulate.

Weakness in IBM and Hewlett-Packard wasn't helping the Dow any. Together those bellwethers were slashing over 36 points from the blue-chip index. Microsoft was also weighing in, with 8.7 negative points, as were financial stocks

J.P. Morgan

(JPM) - Get Report

and

American Express

(AXP) - Get Report

.

Less than jazzed with the

Federal Reserve's decision to leave interest rates unchanged yesterday, investors whacked the Nasdaq down another 112.81 to 2511.71. The broader market, as measured by the

S&P 500, also hit a 52-week low. But the blue-chip industrial

Dow kept its wits about it, slipping a more modest 61.05 to 10584.37.

The Nasdaq is now 50% off its highs for the year, and some investors fear that Armageddon is here for tech stocks.

Yesterday, the Federal Reserve left interest rates unchanged, but it changed its outlook on the economy to one that sees the risks of recession as the greater risk to the economy, a move suggesting it could lower rates as soon as its next meeting on Jan. 30. In a statement released after the meeting, the Fed said the risks facing the economic expansion "are weighted mainly towards conditions that may generate economic weakness in the foreseeable future."

TheStreet.com

discussed the outcome of yesterday's meeting in a separate

story.

But the market wanted its interest-rate cut now, so stocks tumbled as investors worried that Fed Chairman

Alan Greenspan may be behind the curve on the economic slowdown -- in other words, that the economy is slowing too fast and too far.

The earnings warnings spigot, meanwhile, is still going full force. Both

Foundry Networks

-- a manufacturer of Internet networking products -- and

Jabil Circuit

(JBL) - Get Report

last night announced earnings that fell below analysts' targets. Jabil manufactures electronics equipment for the communications, computer peripherals, personal computers, automotive and consumer product industries.

Jabil's

warning is one more sign of how slowing PC sales are hurting earnings in other technology businesses -- from chipmakers to electronic components manufacturers like Jabil. When consumers and companies buy fewer computers, PC-makers need fewer chips to power the machines and fewer companies to help them put the machines together. And so the sales slowdown trickles down through other sectors.

Also on the earnings front, the market is still circulating rumors about a few of the companies that haven't yet warned. That includes network-computer maker

Sun Microsystems

(SUNW) - Get Report

and

Yahoo!

(YHOO)

.

The Sun rumors cropped up last week, while speculation began in earnest yesterday that uber Internet company Yahoo! would warn.

SG Cowen

analyst Scott Reamer said Yahoo! might be in danger of preannouncing that it has missed earnings targets for the fourth quarter. Reamer cited the fact that a weak advertising market has already drawn confessions out of the likes of online ad company

DoubleClick

(DCLK)

and media giant

Time Warner

(TWX)

.

TheStreet.com

recently took a look at which companies among the

S&P 500

have

warned and who's been mum.

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Sector Watch

Defensive sectors, the drugs, utilities and gold were the few green spots on the market's screen this morning, but even they were making meager gains.

The

American Stock Exchange Tobacco Index

had been up, but lately was down slightly -- lower by 0.4%, to 298.4. The

Dow Jones Utility Average

was up 0.5% to 397.2 and the

Philadelphia Stock Exchange Gold and Silver Index

was jumping 2.7% to $52.32.

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Bonds/Economy

Treasury note and bond prices were sharply higher as investors worried that yesterday's decision by the

Fed to leave interest rates unchanged will further slow the economy. That possibility is weighing on stock prices, which helps the bond market.

The benchmark 10-year

Treasury note lately was up 17/32 to 104 23/32, lowering its yield to 5.121%.

Bond prices were rising despite signs of strength in the housing sector.

Housing starts

(

definition |

chart |

source

) rose more than expected in November, to 1.562 million from 1.528 million in October. Economists polled by

Reuters

had forecast a rate of 1.536 million.

In other economic news, the weekly

Mortgage Applications Survey

(

definition |

chart |

source

) detected an increase in refinancing and a decrease in new mortgage activity as mortgage interest rates fell to new lows for the year. The Refinancing Index rose to 777.2, the highest since May 1999. The Purchase Index fell to 302.2.

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