Market Update: Was Rally Ahead of Its Time? Dow, Comp in the Red

<LI>Financials continue yesterday's good fortune.</LI><LI>Paper, utilities, gold stocks are strong.</LI><LI>IBM, Hewlett-Packard down.</LI>
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The

Nasdaq tried to keep yesterday's rallying spirit alive this morning. But the attempt was fleeting -- a nervous hop up at the open quickly faded. But at least the tech-heavy index wasn't tanking. After all, it rang up the single-largest point and percentage gain in its 29-year history yesterday, closing 10% higher.

The

Dow, which also rallied nicely yesterday, didn't even try to pull it off again this morning. The blue-chip index was lately dropping heavily on weakness in what were yesterday's winning tech components --

IBM

(IBM) - Get Report

,

Intel

(INTC) - Get Report

and

Hewlett-Packard

(HWP)

.

The broader

S&P 500, which rose some 2.88% yesterday, was off 0.6%.

A

warning from

Apple

(AAPL) - Get Report

last night helped to dizzy tech investors, reminding them why the Nasdaq was down so low in the first place. Apple said it expects to miss its fiscal first-quarter sales and earnings targets. Really miss them. The maker of colorful computers was one of the first high-profile tech companies -- back in September -- to warn it would

miss fourth-quarter earnings targets. That earlier warning helped spark initial investor concerns about slowing computer demand, a concern that has shredded stocks in the sector the past two months.

So it's no wonder that the analysts were swinging into action.

Bear Stearns

this morning cut its revenue and earnings estimates on Apple.

Lehman Brothers

also lowered Apple's EPS estimates. And

Credit Suisse First Boston

stepped in to lower its ratings of computer-makers Apple,

Gateway

(GTW)

and

Compaq

(CPQ)

.

PC-makers everywhere were being punished for Apple's mistake. Gateway was losing 8.2%,

Hewlett-Packard

(HWP)

was off 6.4%, Compaq was 13.5% lower,

Dell

(DELL) - Get Report

was falling 10.2%, and, of course, Apple was tanking 13.2%. The

Philadelphia Stock Exchange Computer Box Maker Index

was losing 4.98%.

Electronics retailer

Circuit City

(CC) - Get Report

was also taking it on the chin after Lehman lowered its fourth quarter, full year and 2001 earnings targets on the company due to weakening sales after the Thanksgiving holiday. Retail stocks everywhere have been battered lately on concerns that a slowing economy will make consumers more frugal, reducing holiday sales' traditional strength. Circuit City was falling 19.6% and

TheStreet.com Internet Sector

Index was falling 0.7%.

Other tech sectors -- such as the semiconductors and networking stocks -- were touched a little more modestly by the selling. Meanwhile, financials continued yesterday's rally and some of the defensive stocks -- utilities, paper and gold -- were back in fashion.

Yesterday, encouraging words on the economy from the

G-man and a bit of perceived resolution on the elections front sent the tech-heavy Nasdaq up a record 10% to 2889.8. The blue-chip

Dow rallied up 338.62 to 10,898.72.

The speech raised hopes that the

Fed will change its outlook -- sometimes called its bias -- on inflation to neutral at its Dec. 19

Federal Open Market Committee meeting. The Fed's outlook on the economy currently holds that the risks of inflation are greater than the risks of recession.

The Street.com

took a separate look at

Alan Greenspan's speech yesterday.

A neutral outlook on the risks of inflation is great, but some market-watchers think yesterday's rally may have already priced in an interest-rate cut. And that's far from guaranteed, anyway. A neutral bias is only a first step in the direction of a potential interest-rate cut. Meanwhile, Monday's court rulings may have made it harder for Al Gore to win his quest for the presidency, but they didn't put an end to the elections mess. Class-action suits being brought in Florida about contested votes could still play an important part in this battle -- and those could drag on for a bit longer.

In other words, yesterday's not-so-modest rally may have gotten ahead of itself as money managers with a lot of cash on their hands jumped back in to the market -- not wanting to miss their chance at a year-end rally. Just a few months ago, most pundits were convinced the market wouldn't get through December without one. Then again, a little consolidation may be just what stocks need before they can move higher.

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Sector Watch

Retail was pulling back again today this morning after a two-day rally as concerns about holiday sales resurfaced yesterday and this morning. Lehman's call on Circuit City didn't help. The

S&P Retail Sector

was down 1.5%.

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Bonds/Economy

Treasuries were higher this morning following market-friendly words from the Fed chairman yesterday. The benchmark 10-year

Treasury note was lately up 7/32 at 102 20/32, yielding 5.397%.

Treasuries staged a huge rally yesterday that dropped yields to new lows for the year in response to the indication from Greenspan that the central bank would likely lower interest rates in the months ahead.

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