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Market Update: Stocks Toss and Turn Amid Mixed Earnings Stew, California Crisis

<LI>IBM storms higher, lifting Dow.</LI><LI>Semis rally despite weak earnings.</LI><LI>Financials still weak after First Union warning.</LI>

The blue-chip

Dow and the

Nasdaq shifted and stumbled at the open, and were both lately up double digits.

Following last week's three-day rally and yesterday's three-digit bounce on the Nasdaq, more and more investors are on the lookout for a short-term rally in tech stocks. But that doesn't mean it's going to be easy.

Tech bell-cow

IBM

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

was certainly a market sweet spot following its highly anticipated earnings report last night. The PC maker

reported solid fourth quarter earnings and revenues and confirmed its 2001 outlook. Big blue was fire in the Dow's belly, adding 65.1 points of upside to the blue-chip index.

Machinery leader

Caterpillar

(CAT) - Get Caterpillar Inc. Report

was stealing some of that fire, however, after the company forecast a 5% to 10% decline in earnings in 2001. Caterpillar was off 8.2% and shaving 24.4 weighted points from the Dow.

But in the thick of earnings season, and despite aggressively lowered earnings estimates, some companies continue to disappoint.

Even the Internet bone-yard continues to produce new casualties.

Vignette

(VIGN)

was one of today's sad stories and was the most actively traded stock on the Nasdaq. The Web content management company tanked at the open after dropping its outlook for the first quarter of this year and announcing plans to layoff workers due to the slowing economy. Vignette was falling 43.5% to $7.06.

But last night's earnings picture contained plenty of blips. Specialty chipmaker

Xilinx

(XLNX) - Get Xilinx, Inc. (XLNX) Report

missed estimates; networking company

Redback Networks

(RBAK)

said gross margins are declining; bellwether chipmaker

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

missed already revised estimates and said it expects flat first-quarter revenue.

Despite the bad news on Xilinx and AMD, semiconductor stocks were rising today. The sector -- which has been shredded since early September as concerns over inventory buildup and slowing technology spending surfaced -- has been recovering slowly in the past month.

The PC makers were also having a day in the sun.

Apple Computer

(AAPL) - Get Apple Inc. (AAPL) Report

was another one of the day's rising stars after it beat much lowered forecasts with a narrower-than-expected loss. Though the loss is the company's first in three years, Apple shares were up 7.1% to $18.

Some market-watchers attributed the rise to news that the company's aggressive price-cutting helped it lower inventory turnover to 5 1/2 weeks from the 11 weeks they stood at in early December, where 5 1/2 weeks is pretty much normal.

Meanwhile, the energy crisis in California is worsening and threatens to bankrupt two huge utilities --

Edison International

TheStreet Recommends

(EIX) - Get Edison International Report

and

PG&E

(PCG) - Get PG&E Corporation Report

. And that could have repercussions far and beyond -- it would certainly be bad news for creditor banks. After tumbling precipitously since early December, Edison was lately up 2.1% to $9 and PG&E was lately down 0.7% to $9.56.

The California utilities were given some extra time to pay delinquent bills by Gov. Davis last night. The governor declared a state of emergency last night, ordered the state to buy power through the Department of Water Resources and authorized rolling blackouts.

Some say -- as the first week of earnings season comes to a close -- that investors have begun to turn away from earnings as a barometer of the overall tone of the market and focus instead on an anticipated recovery of the economy some six months down the line. After all, this past fall a flood of downward revisions to earnings forecasts sent the market spinning lower and some think all the bad news is already priced into the market.

Perhaps the biggest question now is how much of an interest-rate cut the market will get from the

Fed when it meets at the end of the month. Market pros wonder whether the central bank will knock off a quarter point or a half point. It's tough to gauge. Last Friday's

Producer Price Index fired up some concern that inflation remains a problem, and some began to worry that we would get only a quarter-point cut. But yesterday's

Consumer Price Index, and

industrial production numbers reassured some that a half-point is still in the cards.

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Bonds/Economy

Bond prices were up this morning after a stronger close yesterday. The benchmark 10-year

Treasury note was lately up 17/32 at 104 26/32, yielding 5.108%.

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Sector Watch

In an environment where interest rates are falling, financials are often seen as

the

place to be. But not today. Almost all of the banks were getting soundly whupped and the

Philadelphia Stock Exchange/KBW Bank Index

was down 1.3% after

First Union

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said it expects earnings growth to miss the 10% to 12% goal for 2001. First Union was tumbling 3.7% to $30.69.

Bank of America

(BAC) - Get Bank of America Corp Report

was off 0.3%, the recently merged

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

was falling 2.6% to $51.63 and

Bank of New York

(BK) - Get Bank of New York Mellon Corporation Report

was slipping 2.1% to $49.63.

Financials tanked yesterday following an earnings miss from J.P. Morgan Chase. An industrywide slowdown in some investment banking and securities brokerage areas, along with worries that weakening credit quality could hurt banks' loan portfolios, has investors expecting a lot of

bad news from the banking sector this earnings season.

Other pockets of weakness were retail, paper, transport and energy stocks.

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