The phantom of economic recessions past descended upon the market again this morning following the most recent bout of earnings warnings. Tuesday's record-breaking gains and hopes of a year-end rally seemed like a distant memory this morning.
Nasdaq Composite continued yesterday's selloff, biting into its 274 point Tuesday rally, but the tech-heavy index had lately pulled back from earlier lows. The
Dow, which posted a horrendous 234.34 loss yesterday, was tossing a bit above the flatline. And the
S&P 500 was just barely positive.
Market optimism was first tested yesterday by earnings warnings from
Bank of America
was the culprit this morning. The mobile-phone firm announced this morning that it
won't meet already lowered fourth-quarter sales or net guidance. It also said it will likely lower its outlook for 2001 soon. It was off 4.6%.
Motorola's warning was just one more sign that it's going to be a nasty earnings
confession season, as more and more companies are finding that lowering earnings estimates once is not enough. Motorola
first lowered its financial estimates for the fourth quarter and next year about two months ago.
The recent warnings have reminded investors what it was that had them selling in the first place -- receding demand for technology and worsening credit quality. And the warnings have revived fears that a recession looms somewhere on the horizon.
In a speech Tuesday,
Mr. Span hinted that the
Federal Open Market Committee could move its outlook for the economy to neutral. The current bias holds that the risks of inflation outweigh the risks of a recession. And a move to neutral would be a first step toward an interest-rate cut.
But the fear in the market is that an interest-rate cut may come too late. Some worry that the Fed's program of interest-rate hikes -- six increases since June 1999 -- yanked the nose of the economy down too hard, and that we are headed for a recession.
What the market may need now is, well, some resolution on the election or an actual change, instead of a projected one, in the bias at that FOMC meeting on Dec. 19.
Today brings a possibly decisive Florida high court hearing, while a federal appeals court yesterday rejected Bush's call to bar any future recounts. Meanwhile, trials are entering their second day in Tallahassee, where judges are being asked to throw out thousand of absentee votes that are mostly for Bush.
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Financials were rebounding today from yesterday's selloff on
Bank of America's
earnings warning yesterday. The
Philadelphia Stock Exchange/KBW Bank Index
was up 1.4%, while Bank of America was lifting 0.99%. After being beaten down by credit-risk concerns, the banks have tried to rally back several times in the past two months.
Among other defensive sectors showing strength this morning were the drug stocks.
was up 0.3% after
raised Merck's earnings per share targets for 2001 to $3.25 from $3.20. The
American Stock Exchange Pharmaceutical Index
was barely up, higher by 0.1%.
Semiconductor stocks continued to give back gains won Tuesday. Among the losers in this sector was
, which reports second-quarter earnings today. National Semiconductor was falling 10.3%. The
Philadelphia Stock Exchange Semiconductor Index
was down 1.5%.
was bouncing back, however, after dropping on rumors that it planned to warn about missing earnings targets. Intel was up 3.5%.
The PC sector also continued lower following Apple's warning and a
report from market-research firm
International Data Corp.
this morning. The
Philadelphia Stock Exchange Computer Box Maker Index
was down 0.4%.
IDC warned that consumer demand for personal computers will remain weak for the next two to three quarters before it picks up again. The firm revised its growth estimates for worldwide PC shipments in the fourth quarter to 19.6% vs. the year-ago quarter. The previous estimate was 20.3%.
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Treasuries were giving back a small portion of their extraordinary gains of the last two sessions.
The benchmark 10-year
Treasury note rose in price by a total of more than a point and a half on Tuesday and Wednesday, which dropped its yield to the lowest level since April 1999. Lately it was down 9/32 at 102 28/32, lifting its yield to 5.362%. The gains were based on expectations that the
Fed will lower interest rates in the next few months to stimulate the economy.
In the only economic news of the day,
initial jobless claims
) fell to 352,000 from 361,000, indicating a slight tightening of labor-market conditions, which have eased considerably by this measure since the spring. The four-week average rose to 345,250, the highest in nearly a year and a half, from 344,000.
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