The

Nasdaq was doing a pretty nice job of shrugging off tech leader

Yahoo!'s

(YHOO)

brutal earnings news -- out last night. The

Dow was having a harder time, lately touching new lows.

If yesterday is any indication, stocks should see some more volatility today. But market sentiment is improving and investors seem to be developing an immunity to negative news. Yesterday, despite downgrades on a few networking systems providers and extreme volatility through the early afternoon, the Nasdaq and the Dow rallied into the close.

If the Nasdaq rally holds until the close, it would mark the first time in many weeks that it has sustained a rally for three consecutive days. The Comp rose 45.4 points Tuesday to 2441.3 and 82.9 points to 2524.2 yesterday.

Yahoo! was lately bumped down to second among the Nasdaq's most actively traded stocks by

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

this morning. But it was still falling dramatically, down 14.8% to $26. The second-largest pure-play Internet company after

America Online

(AOL)

, the company forecast 2001 earnings per share of 33 cents to 43 cents compared with analyst forecasts for as much as 59 cents a share last night.

Cisco continued to fall after CEO John Chambers was bearish about the business'

outlook yesterday. Cisco was off 0.7%.

But earlier weakness in the Internet and Semiconductor sectors had faded. AOL was up 4.7% to $47 and

TheStreet.com Internet Sector

index was higher 2%. The

Philadelphia Stock Exchange Semiconductor Index

was rising 3.1% despite several negative reports on the group.

Lehman Brothers'

analyst

Dan Niles suggested that investors sell all their semi stocks if the sector rallies.

PC makers were also enjoying a golden moment. This group started the morning higher and kept on climbing despite a negative report on

Hewlett-Packard

(HWP)

and

IBM

(IBM) - Get International Business Machines (IBM) Report

issued this morning. H-P was up 1.2%, while IBM was down 0.7%.

Biotechnology stocks continued to show weakness, however, as investors took profits following a ripping two-day rally in this sector yesterday. The

Nasdaq Biotechnology Index

, which rose 6.8% over the two-day period to 948.8, was lately down 0.9%

Old industrial stocks continued to take down the Dow today.

Minnesota Mining & Manufacturing

(MMM) - Get 3M Company Report

, chemicals company

DuPont

(DD) - Get DuPont de Nemours, Inc. Report

, tobacco titan

Philip Morris

(MO) - Get Altria Group Inc Report

and drug lord

Merck

(MRK) - Get Merck & Co., Inc. (MRK) Report

were the biggest losers on the Dow, cutting a joint 56 points from the blue-chip index. Consumer staples also took a turn for the worse. Toothpaste titan

Procter & Gamble

(PG) - Get Procter & Gamble Company Report

, one of yesterday's worst Dow performers, was down 2%. The

Morgan Stanley Consumer Index

was off 1.7%.

Motorola, the world's second-largest cell-phone maker, meanwhile, was rising, up 4.7%. The company

TheStreet Recommends

met already lowered fourth-quarter earnings expectations last night, though it reported a decline in profit and said handset sales fell 20% in the quarter.

In a conference call with analysts this morning, Motorola said it wouldn't provide specific guidance for 2001 until it reports its first-quarter earnings.

The real strength in the market right now is investor optimism that the

Federal Reserve will cut interest rates by another half-point at the end of this month. The Fed's policy making body, the

Federal Open Market Committee, meets Jan. 30 and 31 to decide on interest rates. Last week, the Fed dropped the benchmark

federal funds rate 50 basis points, to 6%, in a surprise intermeeting move.

Still, it remains to be seen whether the market can take the Yahoo! news in stride.

It perhaps was no surprise that Yahoo! guided earnings estimates down for this year in its conference call last night. Companies are expected to issue disappointing outlooks this earnings season. With the shrinking dot-com universe and slowing economic growth taking a major toll on online advertising, pretty much all of the analysts were expecting Yahoo! to warn about coming quarters. But analysts were shocked by just how much Yahoo! slashed and burned.

Back to top

Sector Watch

Energy stocks were rising on strength in crude oil prices. Prices were higher on expectations that OPEC, the organization of oil exporting countries, will cut production when it meets next week. The

American Stock Exchange Oil & Gas Index

was lifting 1.5%.

Commodity-related stocks and other defensives continue to sink, however. The

Philadelphia Stock Exchange Gold and Silver Index

was down 1.8% and the

Philadelphia Stock Exchange Forest & Paper Index

was slipping 2.2%.

Utility, drugs and tobacco stocks were also having a rough day. The

Dow Jones Utility Average

was 3.3% lower, the

American Stock Exchange Pharmaceutical Index

was slipping 2%, and the

American Stock Exchange Tobacco Index

was off 2.3%.

The

AMEX Airline Index

was rebounding from yesterday's slide, up 0.3%.

AMR

(AMR)

, the parent of American Airlines, which recently announced plans to consolidate with now-bankrupt

TWA

(TWA)

, was also bouncing back from yesterday's selloff, up 0.3%.

Back to top

Bonds/Economy

Treasuries initially traded higher this morning, their first upturn in four days. But they had lately fallen off toward midday. The latest unemployment data came out better than would be expected from the worsening economy. It remains subject to adjustment, however, and traders are keener about December's retail report due tomorrow.

The benchmark 10-year

Treasury note lately was down 3/32 to 104 26/32, raising its yield to 5.108%.

In economic news,

initial jobless claims

(

definition |

chart |

source

), which tally those filing for state unemployment benefits for the first time, fell more than expected, to 345,000 in the week ended Jan. 6, from 381,000 the previous week. Economists polled by Reuters had predicted a number of 374,000. The tightening labor market contradicts recent news of companies shutting down or having to lay off a large part of their workforce. However, the claims number may be revised since many states submit preliminary data. The four-week average rose to 363,000 from 356,750. This is its highest value since mid-July of 1998.

Import and export prices

(

definition |

chart |

source

) fell in December. The Import Price Index fell 0.5 %, largely due to a 9.3% drop in oil prices. Excluding oil, the index had a 0.9% gain. The growth rate of import prices slowed for the third consecutive month, falling to 3.5% from 4.7% in November.

The

Consumer Comfort Index

(

definition |

chart ), which assesses consumers' confidence in the overall economy, fell to 23% for the week ended Jan.7. This is its lowest level in the past twelve months, six points below the average for that period and fifteen points below the high.