Market Update: Ugly 2000 Ends and 2001 Starts on an Equally Gruesome Note -- Nasdaq Closes Off Over 7%

<LI>Tech sector plays standard whipping-boy role.</LI><LI>Alcoa, Boeing, Du Pont all downgraded.</LI>
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What's the difference between bad and worse?

Well, last year was

bad

. The

Nasdaq dropped 39%, the economy slowed and

Arnold Schwartzenegger

made an ill-advised return to the multiplex. This year might be

worse

, with both the

Dow Jones Industrial Average and the

Nasdaq Composite Index in heavy losses at the end of the trading day, fears of a recession on the horizon and Ah-nuld's next flick called

Collateral Damage

. How appropriate.

Here's another case of bad-to-worse-itis. This morning, the December

National Purchasing Managers' Index

numbers were released, and this month's numbers are worse than last month's, which were bad. And they're also worse than the Street expected, proving that the American economy is cooling off at a pretty good clip.

The PMI showed a severe slowdown in manufacturing in December. The indicator came in at 43.7 -- much cooler than the forecasted 47 -- which extends a recent downturn in this index. The PMI was 47.7 in November. A number below 50 signals a contraction in the manufacturing sector, above that means manufacturing is expanding. The PMI is based on a survey of purchasing executives at roughly 300 industrial companies.

Tuesday's Market Slide

Net Infrastructure Stocks Take It on the Chin

Networkers Plunge Once More as Investors Undress the Windows

Palm, Handspring and RIM Slapped Down Again

Pulse: Previously Impervious Data-Storage Stocks Feeling Tech's Pain

This adds more ammunition to those who are screaming for the

Federal Reserve to slash rates soon. Some are even clamoring for a cut before the next meeting, the two-day

Federal Open Market Committee gathering on Jan. 30 and 31.

The Dow didn't react too well to the data, which hit the street just after 10 a.m. EST. It fell from a middling loss to a major three-digit whopper. The Dow ended off about 142, as analysts played barbershop with a bunch of blue-chip ratings.

Alcoa

(AA) - Get Report

got the shears and was dropped to outperform from strong buy at

Morgan Stanley Dean Witter

, while

Boeing

(BA) - Get Report

, one of 2000's biggest Dow winners, was cleaved to buy from strong buy at

First Union Securities

.

UBS Warburg

cut

DuPont

(DD) - Get Report

to hold from strong buy.

All three were off on the shave and a haircut, but Boeing was the only real significant loser, adding 26 to the Dow's downside.

And in a bulletin about the retailing industry from earlier this morning,

Merrill Lynch

analyst Peter Caruso said that although

Home Depot

(HD) - Get Report

has "significantly underperformed" other quality defensive retail names, he feels the trouble is over for the blue-chip retailer. He said the Depot, along with other rate-sensitive hardliners like

Best Buy

(BBY) - Get Report

, have hit something of a bottom. More specifically, and perhaps more importantly, Merrill Lynch said the leading flow of money is headed toward the Home Depots of the world and advised investors to follow accordingly. Get in before the rest of the sheep.

"And since the leading money flow often accurately predicts where the lagging money flow will ultimately show up, we advise investors to begin to position their portfolios in advance of this continuing trend," Caruso said.

Caruso said he likes Best Buy,

Radio Shack

(RSH)

and

Lowe's

(LOW) - Get Report

. The analyst did caution about slowing PC sales with regard to Best Buy, though.

On the news, Home Depot was not far from the break-even point, as were Lowe's and Best Buy. But the Shack was a wreck, falling 6.9% despite the nice words from Caruso.

Sanford Bernstein

said now might be a good time to snap up some

IBM

(IBM) - Get Report

. The brokerage said that IBM's current level, $85.88, could be an attractive place to start building a position in Big Blue. Sanford Bernstein reiterated its fourth-quarter per share earnings estimates, but reduced Big Blue's growth estimate to 5.5% from 7%. Sanford said IBM should not be viewed as a growth stock, but as a company that can deliver consistent earnings on high cash flow.

The news kept IBM out of the red for most of the day, but it still ended of 19 cents to $39.88.

But the biggest Dow losers were the ones who're gonna be joined up soon.

General Electric

(GE) - Get Report

and

Honeywell

(HON) - Get Report

were taking a combined 47 off the index.

Some people think Nasdaq stands for "National Association of Securities Dealers Automated Quotation." And although they are technically correct, Nasdaq could very well stand for "New Assurances of Sickness, Decimation and Quitting." After opening 4 points in the green, the technology-laden index dropped like

Chevy Chase

-- falling until the career imploded, the laughter died and the humiliation set in.

The

Morgan Stanley High-Technology 35 Index

fell 6%, which is a pretty good indication of why the Comp is off. The Morgan Stanley index tracks the biggest names in tech, and includes names like

Sun Microsystems

(SUNW) - Get Report

, which was off 8.7%,

Yahoo!

(YHOO)

, off 6.2%, and

Cisco

(CSCO) - Get Report

, was off 13% and simultaneously hit a 52-week low.

Not good. Not good at all. Especially for the networkers. The

American Stock Exchange Networking Index

dropped 10% while the

TheStreet.com Internet Sector Index

was off 9%.

TheStreet.com Internet Sector Index

, which at this time last year opened the day at 1154.45, was doing what it did for most of 2000 -- collapsing. With death creeping up on Internet companies -- investors calling for heads, viable business plans, revenues, earnings, balance sheets

and

a return on investments, these Web names were out of vogue. Again.

Today, the DOT got within four points of a 52-week low as it found out that you can not only fall 76% over 365 days in 2000, but also almost 10% in the first trading day of 2001.

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Sector Watch

A closer look at the stink in technology will show that it's not just the dot-coms and large-caps that are rotten. It's also biotechnology, one of last year's few Nasdaq bright spots. The

American Stock Exchange Biotechnology Index

fell 6.8%.

Telecommunications were also lower, with the

Nasdaq Telecommunications Index

falling 7.4%.

With the going getting tough, the tough was turning to defensive oil and gold stocks. The

American Stock Exchange Oil & Gas Index

gained 1.3%, while the

Philadelphia Stock Exchange Gold & Silver Index

gained 0.7%.

And ... that's it, really. Nothing else of any real import was up an awful lot. There's a lot of pain out there. A lot.

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Bonds/Economy

Treasury note and bonds were selling sharply higher as traders, back in full numbers on the floor, reacted to the latest confirmation of economic weakness. The national manufacturing data released today registered a plunge in factory output, pushing it down to the level of 10 years ago. All three equity indices were receding. The bond yields, on a steady decline for the past two weeks, were dipping to levels last seen in the first quarter of 1999.

The benchmark 10-year

Treasury notelately was up 1 16/32 to 106 10/32, lowering its yield to 4.918%.

In economic news, the

Purchasing Managers' Index

(

definition |

chart |

source

) provided stark signs of an economic slowdown. Its reading came in much lower than expected and in contrast with that of the

Chicago Purchasing Managers' Index

(

definition |

chart), which actually rose last week. The PMI fell to 43.7 in December in from 47.7 in November, its fifth consecutive monthly decrease and the lowest reading since April 1991. Economists polled by

Reuters

had forecasted a December reading of 47. A sub-50 reading indicates that the sector is slowing rather than growing.

The national report thus presents broad-based evidence of manufacturing sector weakness and a complete lack of inflationary prospects. Foreign demand for American made goods also remains low, and producers continue to reduce inventories.

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