Market Update: Nasdaq, Dow Try to Battle Back From Deep, Red Hole

<LI>Over 500 Nasdaq stocks hit 52-week lows.</LI><LI>Dow techs punishing index.</LI> <LI>Financials, drugs, tobacco and gold higher.</LI>
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Already battered and broken by a dismal outlook for tech earnings and anxiety over the

still

unresolved presidential elections, the

Nasdaq was thrown into a state of emergency this morning following profit warnings from PC-maker

Gateway

(GTW)

and specialty chipmaker

Altera

(ALTR) - Get Report

after the market closed yesterday.

The Comp was subsequently slammed with a flurry of downgrades on PC-makers and semiconductor stocks this morning. Already at a 52-week low, the tech-heavy index shed over 129 points just 15 minutes after the bell. The Nasdaq had lately recovered some of those losses.

The

Dow couldn't resist tech's drag at the open, but was also plodding back to the flatline.

Gateway was one of the last earnings

survivors in the personal-computer sector. In the most disappointing quarter of earnings this year, computer leaders and several of the major chipmakers have dropped bomb after bomb on tech investors -- warning that earnings and revenues will not meet targets as the economy slows. As the last standouts fall like toy soldiers, some market pundits are hoping this may be the bitter end -- that the bad news is all out; the selling can't get any worse; a bottom is finally near; and that the market will have to turn around soon.

Still, it may take a real whopper of a catalyst to turn this thing around. The Nasdaq has made several attempts to rally back since last Friday.

Wounded Gateway Facing a Turkey Shoot Thursday

Altera Slammed in After-Hours Trading Over Revenue Warning

Legg Mason's Miller Was Cowed by Gateway, and Got His Bell Rung

Wake Up and Smell the Losses

The wave of nasty earnings surprises and analyst downgrades have severely shaken investors' faith in corporations' earnings targets -- and in the market's ability to climb out of this deep, dark hole. Even many of the brave hearts haven't been up to buying on the dips anymore. And without any buyers to prop tech stocks up, attempt after attempt at a rally folds in on itself like a house of cards.

Gateway's warning was

severe; it cut estimates for fourth quarter and the coming year sharply. Altera, meanwhile, cut its revenue estimates only.

Gateway was lately off 36%, and 431 Nasdaq stocks were hitting new 52-week lows, including Altera and competitor Xilinx, PC-makers

Dell

(DELL) - Get Report

and

Apple

(AAPL) - Get Report

and optical-component maker

JDS Uniphase

(JDSU)

, among others.

Investors were hacking away at blue-chip tech bellwethers, which were mostly responsible for the Dow's fall. Software behemoth

Microsoft

(MSFT) - Get Report

, down 5.5%, semiconductor king

Intel

(INTC) - Get Report

, down 9.7%, and PC-makers

IBM

(IBM) - Get Report

and

Hewlett-Packard

(HWP)

, down 4.1% and 6.2%, were putting about 86 points of downside pressure on the index.

Oracle

(ORCL) - Get Report

was one of the day's lone stars, lately up 4.6%.

In typical fashion, investors were sticking cash into defensive stocks such as drugs, tobacco, utilities and gold.

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Sector Watch

Financials continued a winning streak that began last Friday, rallying back from a sharp selloff sparked by worries over credit risk in the first week of November. Financial giant

J.P. Morgan

(JPM) - Get Report

wasn't rallying along with the rest of them, however, and was down 1.5%.

Citigroup

(C) - Get Report

was up 1.9%, while

The Bank of New York

(BK) - Get Report

was up 1.5%, and American Express

(AXP) - Get Report

was 2.3% higher. The

Philadelphia Stock Exchange/KBW Bank Index

was up 1.1%.

The drugs also continued a heady rally begun in early September, when the Nasdaq began to falter. The

American Stock Exchange Pharmaceutical Index

was up 1.1%. Merck

(MRK) - Get Report

, which hit an all-time high yesterday, was up another 1.1% to $95.94.

Howard Barlow, vice president of WHB/Wolverine Asset Management said yesterday that he didn't expect the rally in the drugs to be sustainable for much longer, since many of these names have racheted up so far in the past few months.

The

American Stock Exchange Tobacco Index

was up 0.6%.

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Bonds/Economy

Treasuries, which have been rallying for months on the expectation that economic growth would slow -- possibly prompting the

Fed to lower interest rates -- are narrowly mixed in response to new evidence that the slowdown is in progress.

'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

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

The benchmark 10-year

Treasury note lately was up 4/32 at 101 23/32, yielding 5.518%.

Meanwhile, people 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%.

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 reading 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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