Market Update: Dow, Nasdaq End Off Lows, but Still Miserable

Markets were engaged in the kind of bloodshed that would make Idi Amin seek out a therapist.

No one was spared the rod as investors took chainsaws to both the

Dow Jones Industrial Average and

Nasdaq Composite Index. The Dow fell about 212 points to 10,420, while the Comp dropped 109 points to 2598, off earlier lows of 2523. It was the first time the Comp's closed below 2600 since August 1999 -- and it erases more than a year's worth of gains.

Hard to believe that the Comp hit 5132 almost nine months ago. Since then, the Comp has been cut in half.

Today's telling stat: There were 853 new 52-week lows on the Nasdaq.

Both major market indices were at session lows. Sure, they experienced a nice little midmorning bounce from those lows, but like a rock star in a heroin clinic, that was nothing more than a short stop on the long road down. The fall was so bad that market curbs have been put in place to limit the amount the markets can fall.

The Dow posted a tidy drop of 2%. Within the blue-chips, 21 of the 30 industrials were in the red, with

Microsoft

(MSFT) - Get Report

, the absolute worst of the bunch, adding 47 to the Dow's negative side.

But the forces of negativity were overwhelming. Eight companies added 10 points or more to the Dow's downside, with technology names the worst of the bunch. Microsoft,

IBM

(IBM) - Get Report

,

Intel

(INTC) - Get Report

and

Hewlett-Packard

(HWP)

accounted for a combined 130 points of today's loss.

Meanwhile, over on the Comp, which was off 4%, losses weren't being measured in points. Try "pints." Of blood.

An unholy trinity of computer-related industries, personal computing, computer peripherals and chipmakers, were all spitting up value, while investor heads spun.

Last night's warning from

Gateway

(GTW)

kicked open the door to hell. The company severely curbed its fiscal outlook for the next quarter and the coming year, dropping fourth-quarter earnings per share to 37 cents. The consensus analyst estimate from the folks at

First Call/Thomson Financial

was 62 cents a share. For 2001, Gateway sees sales coming in at $10.8 billion, far lower than its previous estimate of $12.2 billion. The company said it missed its fourth-quarter estimates when an expected post-Thanksgiving sales spike never spoke, and that 2001 will be a disappointment because PC inventories are high.

That hurts. A lot. Look at the

Philadelphia Stock Exchange Computer Box Maker Sector

, a collection of the biggest names in the personal computing industry. This index was off 8.9% today, hitting a 52-week low along with most of its components, which include

Apple

(AAPL) - Get Report

,

Compaq

(CPQ)

and

Dell

(DELL) - Get Report

.

But, really, Gateway was nothing more than the tip of a vast, far-reaching iceberg.

Altera

(ALTR) - Get Report

, a semiconductor company and card-carrying member of the

Philadelphia Stock Exchange Semiconductor Index

, or SOX, warned last night that it wouldn't be living up to fiscal expectations, and a veritable who's who of the analyst world

came out to say bad things afterward.

ABN Amro

,

Goldman Sachs

,

Lehman Brothers

and

Credit Suisse First Boston

all lowered their fiscal estimates, taking their cues from Altera's warning last night. Meanwhile,

Robertson Stephens

dropped the company to long-term accumulate from buy and

Deutsche Bank Alex. Brown

dropped its rating to buy from strong buy.

End game: Altera fell 7.7%, while the SOX was off 5.8%, also at 52-week lows, along with many of its big-name components such as

Xilinx

(XLNX) - Get Report

,

Lattice Semiconductor

(LSCC) - Get Report

and

Motorola

(MOT)

.

Everything else in technology took its direction from Altera and Gateway. One is a chipmaker, the other, a well-known PC name. And as those dark clouds roll in on the horizon, there's little silver left to line anything else.

Companies that derive their business from sales of chips or personal computers also fell in tandem. The

American Stock Exchange Disk Drive Index

, a collection of computer peripheral makers, such as

Iomega

(IOM)

and its Zip disk, was off 7.8%.

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Sector Watch

Safe sectors were in short supply. But those that were up had the safest businesses possible -- gold and HMOs.

The

Philadelphia Stock Exchange Gold & Silver Index

rose 1.8%, tacking on gains as investors like shiny precious metals instead of technology.

Understatement alert! Outside of gold, other commodity-related sectors weren't faring too well. The

American Stock Exchange Natural Gas Index

fell 4.7%, while the

Philadelphia Stock Exchange Oil Service Index

fell 6.1%. The

Philadelphia Stock Exchange Forest & Paper Products Index

fell 2.5%.

The

Morgan Stanley/American Stock Exchange HMO Index

rose 2.9%. People get sick, even when the stock market tanks.

Brokers made a scary southbound move, following the devastation in J.P. Morgan. The

American Stock Exchange Securities Broker/Dealer Index

fell 4%.

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Bonds/Economy

Treasuries are rallying in response to the latest dive in stock prices, dropping yields to new lows for the year. Falling stock prices continue to suggest to bond investors that growth will slow more in the months ahead, possibly prompting the

Fed to lower interest rates.

The benchmark 10-year

Treasury note lately was up 20/32 to 102 7/32, yielding 5.453%.

People are more sure than ever that the Fed will lower the

fed funds rate in the next few months. For the first time,

fed funds futures contracts are discounting more than 100% odds that the fed funds rate will be 6.25% by April, down from the current 6.5%.

Earlier, Treasuries, which have been rallying for months on the expectation that economic growth would slow, were ignoring evidence that the slowdown is at hand.

"This is what we've been discounting since May, when we began to rally," said Tony Crescenzi, bond market strategist at

Miller Tabak

and CEO of

Bondtalk.com

. "We get the action we've been looking for, and it starts to go the other way."

The latest evidence that the economy is slowing includes a surprisingly weak showing by the

Chicago Purchasing Managers' Index

(

definition |

chart ), and a rise in

initial jobless claims

(

definition |

chart |

source

).

The Chicago PMI, which gauges the health of Midwest-based manufacturing companies, plunged to 41.7 in November -- its lowest since April 1991 -- from 48.7 in October. Economists polled by

Reuters

had forecast a slight rise to 48.9, on average. Readings below 50 indicate that the Midwest manufacturing sector is contracting, rather than growing.

Initial jobless claims rose to 358,000, the highest since July 1998, from 339,000 the previous week. The four-week average rose to 343,000, also the highest since July 1998, from 331,000. The rise in claims for unemployment insurance indicates that demand for workers is easing as the economy slows.

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