Market Update: Microsoft's Slam-Dunk Takes Triple Digits Off Dow, Comp

<LI>Bargain hunters not attracted to Mr. Softie.</LI><LI>All of tech feeling the pain.</LI><LI>It's triple-witching Friday!</LI>
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An earnings

warning from software behemoth

Microsoft

(MSFT) - Get Report

after the market closed last night put already crummy investor sentiment in a hole. Earnings warnings have been piling up like dirty laundry this quarter -- and Microsoft hasn't missed its earnings targets in 10 years. Investors fear that accumulating signs of a slowing economy and sluggish earnings may point to a recession. Stocks were slam-dunked into a sea of red at the open.

After a lot of stock-drubbing, a few big warnings have been occasion for bargain hunting of late --

Intel

(INTC) - Get Report

,

Advanced Micro Devices

(AMD) - Get Report

,

Doubleclick

(DCLK)

and

Eastman Kodak

(EK)

for example-- but that hasn't been the case this morning. Microsoft's share price has already been shredded, falling 56% since the beginning of the year, but its stock was continuing to fall, lately down 9.5%.

A

Dow component and

Nasdaq heavy-hitter, Microsoft's news was countering a round of better-than-expected earnings reports released last night -- including numbers from

Oracle

(ORCL) - Get Report

that beat estimates. Microsoft was the most actively traded stock on the Nasdaq and was slashing about 31 weighted points from the blue-chip Dow.

A couple of analysts wrinkled their brows and issued stern comments on the stock this morning.

Merrill Lynch's

Christopher Shilakes reduced his price objective -- to $61 -- and estimates for second quarter 2001.

Goldman Sachs

analyst

Rick Sherlund said that next year, Microsoft might not see any growth at all.

Tech stocks everywhere were feeling Mr. Softie's pain, and Internet, PC-making, semiconductor and biotech stocks were all falling. On the Dow, PC-titans

IBM

(IBM) - Get Report

and

Hewlett-Packard

(HWP)

and semiconductor goliath

Intel

(INTC) - Get Report

were putting major pressure on the index. It seemed only Oracle and

Yahoo!

(YHOO)

were being spared. Oracle was up 4.1%, Yahoo! was 0.8% higher.

Oracle last night

reported fiscal second-quarter earnings that beat analysts' expectations by a penny and had an encouraging conference call with

analysts. Oracle was the second-most actively traded stock on the Nasdaq. Also last night,

Adobe Systems

(ADBE) - Get Report

,

Red Hat

(RHAT)

and Internet incubator

CMGI

(CMGI)

reported earnings that beat analyst estimates, but only Adobe was rising, up 6%.

Meanwhile, with the election mess behind it (Dick Cheney even has the key to the transition office), the market is focusing squarely on slowing earnings and a slumping economy. This morning's

Consumer Price Index -- the single best measure of inflation -- showed inflation on nonfood and energy items accelerated mildly in November. The core CPI grew 0.3% for the month, just above forecasts of a 0.2% rise and the previous month's 0.2%. The core number rose 0.2%, in line with forecasts and the previous month. Futures got a little boost shortly after the release of these numbers.

This morning's CPI is important because investors are hoping the

Fed will say at its Dec. 19 meeting that the risk of inflation is now less than the risk of a recession. That would be the first step toward an interest-rate cut in coming months. Lower interest rates help spur economic growth by encouraging spending. Some fear that if the economy doesn't get an interest-rate cut soon, it will fall into a recession.

Making a difficult day even worse, it is

triple-witching Friday, when index futures, index options and options on stocks expire. That can create artificial moves in stocks, adding to volatility.

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Sector Watch

With investors furiously dumping technology stocks, the defensive sectors were eking out some tentative gains. But it wasn't the marked rotation that the market has often seen in recent months.

Tobacco stocks and energy stocks had been getting a decent pop, however, but lately were mixed.

Philip Morris

(MO) - Get Report

was down 1.7%,

Philips Petroleum

(P)

was lifting 0.8% and

Royal Dutch Petroleum

(RD)

was 1.93% higher.

The

American Stock Exchange Tobacco Index

ambled 0.4% higher. The

American Stock Exchange Oil Index

bumped up 0.9%.

Some of the tech indices getting hit the hardest were the

Philadelphia Stock Exchange Computer Box Maker Index

, which tracks PC-makers, and the

Morgan Stanley High-Tech 35

. The PC-maker index was falling 3.9% and the high-tech index was down 3.7%.

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Bonds/Economy

Treasury note and bond prices were lower following the release of the

Consumer Price Index

(

definition |

chart |

source

), which showed that prices of goods and services -- other than food and energy -- rose more than expected in November. The report sounded a mild alarm about inflation.

At the same time, Treasury prices were falling after having risen for three straight days. The rally has dropped most yields to their best levels in a year and a half.

The benchmark 10-year

Treasury note lately was down 1/32 at 104 1/32, lifting its yield to 5.212%.

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%.

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