Market Update: Weak Outlook for Earnings Continues to Drag on Nasdaq

<LI>Bank of America bounces back from recent losses spurred by bad loans.</LI> <LI>Microsoft hurting after Goldman Sachs lowers earnings outlook.</LI>
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The malaise in tech spread through all sectors this morning. And investors continued to drive the

Nasdaq Composite lower, biting further into the 274-point record rally it enjoyed on Tuesday.

Microsoft

(MSFT) - Get Report

was the most actively traded stock on the Nasdaq this morning after

Goldman Sachs

cut the software giant's 2001 earnings targets to $1.88 from $1.91. Microsoft, which has been bashed in the past two weeks, was off 6.2%. Goldman partially blamed weakness in the PC-sector for the cut. Even before this latest round of Microsoft selling, the stock has been substantially lower since its legal battles cast doubt on future prospects. The stock, however, is expected to be favored if there is a GOP win in the White House since a Bush administration is seen as less tough on antitrust litigation.

A few tech leaders were bouncing back, however, including chipmaking titan

Intel

(INTC) - Get Report

. The company had steep losses yesterday on the heels of a

Salomon Smith Barney

report that said Intel's fourth-quarter numbers look like they will be the worst in over a decade. Intel was lately up 3.4%.

Meanwhile, continuing concerns about troubled loans were cutting into

J.P. Morgan

(JPM) - Get Report

this morning, despite some strength in the financial sector. J.P. Morgan was off 3.5% a day after

Bank of America

(BAC) - Get Report

warned it would

miss earnings because of problem loans. Bank of America's warning sent concerns among investors in financials.

Bank of America, which was dragged lower yesterday, was rebounding 2.1% today. After being beaten down by credit-risk concerns, banks in general have tried to rally back several times in the past two months. The

Philadelphia Stock Exchange/KBW Bank Index

was lately up 0.5%.

Some investors believed the stellar gains they enjoyed on Tuesday might have been the beginning of a year-end rally. But those hopes were dashed by a host of warnings, including one from

Apple

(AAPL) - Get Report

after the market closed on Tuesday. Today,

Motorola

(MOT)

was one of the drags. The mobile-phone firm announced this morning that it

won't meet already lowered fourth-quarter sales or net guidance. It also said it will likely lower its outlook for 2001 soon. It was off 4.6%.

Motorola's warning was just one more sign that it's going to be a nasty earnings

confession season, as more and more companies are finding that lowering earnings estimates once is not enough. About two months ago, Motorola

first lowered its financial estimates for the fourth quarter and for next year.

The recent warnings have reminded investors what it was that had them selling in the first place -- receding demand for technology and worsening credit quality. And the warnings have revived fears that a recession may loom somewhere on the horizon.

Tuesday's rally was fueled by

Mr. Span, who hinted in a speech that day that the

Federal Open Market Committee could move its outlook for the economy to neutral -- with risks of inflation on even keel with the risks of economic slowdown.

Any interest rate hope that is being expected likely wouldn't come until first quarter of next year, and some on Wall Street fear that could be too late. The fearful worry that the Fed's program of interest-rate hikes -- six increases since June 1999 -- has yanked the nose of the economy down too hard.

Today brings a possibly decisive Florida high court hearing, while a federal appeals court yesterday rejected Bush's call to bar any future recounts. Meanwhile, trials are entering their second day in Tallahassee, where judges are being asked to throw out thousand of absentee votes that are mostly for Bush.

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Sector Watch

Drug stocks were trying to eek out some gains this morning as investors timidly put cash siphoned out of tech into defensive sectors.

Merck

(MRK) - Get Report

was up 1.1% after

UBS Warburg

raised the drug maker's earnings per share targets for 2001 to $3.25 from $3.20. The

American Stock Exchange Pharmaceutical Index

was barely up.

The PC sector, meanwhile, continued lower following Apple's warning and a not-glowing

report from market-research firm

International Data Corp.

this morning. The

Philadelphia Stock Exchange Computer Box Maker Index

was down 0.4%.

IDC warned that consumer demand for personal computers will remain weak for the next two to three quarters before it picks up again. The firm revised its growth estimates for worldwide PC shipments in the fourth quarter to 19.6% vs. the year-ago quarter. The previous estimate was 20.3%.

Retail, natural gas and oil stocks were rebounding

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Bonds/Economy

Treasuries were giving back a portion of their extraordinary gains made during the last two trading sessions.

The benchmark 10-year

Treasury note rose in price by a total of more than a point and a half on Tuesday and Wednesday, which dropped its yield to the lowest level since April 1999. Lately it was down 9/32 at 102 28/32, lifting its yield to 5.362%. The gains were based on expectations the

Fed will lower interest rates in the next few months to stimulate the economy.

In the only economic news of the day,

initial jobless claims

(

definition |

chart |

source

) fell to 352,000 from 361,000, indicating a slight tightening of labor-market conditions, which have eased considerably by this measure since the spring. The four-week average rose to 345,250, the highest in nearly a year and a half, from 344,000.

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