Today's Market: Bad Dell News Pulling Indices Down in Early Action

<LI>Dell warning hits stock.</LI> <LI>Enron beats earnings expectations.</LI>
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(Updated from 8:43 a.m.)

Bad news may be bad news again this morning.

Investors have been doing a pretty good job of shrugging off earnings disappointments since the start of the year, returning to some of the more beaten-up names in the tech world and inspiring a nice rally on the

Nasdaq. But they might not have the stomach to do it again this morning.

Following

another

earnings warning -- this one from PC maker

Dell

(DELL) - Get Report

, stocks were moving lower in morning action. Dell warned it expects to earn 18 to 19 cents per share in the fourth quarter, falling far short of

First Call/Thompson Financial

forecasts of 25 cents per share.

In early trading, the

Dow Jones Industrial Average was down 19 to 10,568, the

Nasdaq Composite was off 29 to 2741 and the

S&P 500 was off 1 to 1341.

It may just be an early morning twitch. On the other hand, stocks put in a pretty weak performance on Friday -- not a great thing for market sentiment. And the Nasdaq may be due for some pullback after enjoying a nice frolic in the green since the start of this year. The index is now up 300 points, or 12%, since the first trading day of 2001.

The broader market was also looking weaker this morning, though it may be less vulnerable to selling. The broader

S&P 500 is up 1.69% for the year, while the blue-chip

Dow Jones Industrial Average is down 1.8% for the year.

"It's OK to shrug off bad news short term, but long term it may just set us up for a bad future. You have to think that this disappointment tells you that there is something wrong," said bearish trader Doug Myers, vice president of equity trading at

IJL Wachovia

.

"You've got to look at everybody that sells stuff to Dell. It has reverberations and could be a pain in the middle term," he added.

Chipmakers like

Advanced Micro Devices

(AMD) - Get Report

and

Intel

(INTC) - Get Report

and other hardwaremakers are the companies principally dependent on Dell's business.

Dell said this morning that its fourth-quarter revenues, while up 25% from a year ago, will not be enough to allow it to meet earnings expectations. Dell is now expecting earnings of 18 to 19 cents per share, well below analyst forecasts of 25 cents per share. The company's fourth quarter closes at the end of this month.

It is perhaps not all that surprising. The PC maker has issued

warning after warning in the past few months. And in early January,

Lehman Brothers

analyst

Dan Niles issued a harsh report on the company. Niles reduced Dell's fiscal 2002 revenue-growth estimate to 17% from 20% and dropped earnings forecasts for 2002 to 10%, half the company's guidance. Niles also said at the time that he might take a few more cents off of his earnings estimates for the company because of concerns about weakness in the company's investment portfolio. Like other established technology companies, it has invested in a host of New Economy companies.

But analysts had just begun to sing praises about this stock. Why? Dell had begun to rise slowly since the beginning of this year after hitting a low of around $16 in late December. And analysts don't like to be

too

behind the curve. Friday

Credit Suisse First Boston

upgraded the stock to buy from hold, saying "secular industry trends now favor Dell's business model, increasing our confidence in Dell's ability to hit numbers.

Robertson Stephens

also issued a positive report on Dell this morning, upgrading it to long-term attractive from market performer.

If there is a general rotation out of PC makers and chip stocks today, investors may turn back to defensive stocks. But even some of those are suspect today.

"You have your natural gas price bubble. Crude oil is back over $30 bucks. There are a whole bunch of question marks," said Myers."

PG&E

(PCG) - Get Report

used to be a safety stock is not anymore." The beleaguered utility, hurt by the California electricity crisis, is on the brink of bankruptcy.

One energy stock,

Enron

(ENE)

this morning beat consensus earnings forecasts handily. The biggest buyer and seller of electricity and natural gas in the U.S. reported that it had earnings of 41 cents per share, beating analyst estimates by a healthy 7 cents. Enron was one of last year's top performers, outpacing strength in other utilities stocks and rising 87%.

At the crux of the recent market push and pull is a major question: Will the outlook for next year's earnings continue to fall when we move into the first and second quarter of this year? Or will expectations for the second half of the year pick up, signaling a turnaround in the U.S economy? Already, year 2001 growth expectations for the

Nasdaq 100

have fallen to 7.5% from 15.1% just one month ago, largely due to the declines in expectations about chip giant

Intel

(INTC) - Get Report

, says a report by Joseph Kalinowski, equity strateigst at earnings tracker

I/B/E/S

. Growth expectations for the Standard & Poor's tech sector have similarly moved lower, falling to 5.5% from 13.6% a month ago.

The one factor driving market optimism now is a friendly

Federal Reserve. Fed chairman

Alan Greenspan and the

Federal Open Market Committee are expected to cut interest rates by another half point when the group's policy making body meets on Jan. 30 and Jan. 31. In early January, fearing the economy was slowing too quickly, the Fed cut interest rates for the first time in a year and a half, dropping short-term rates a half point to 6%.

More pessimistic Fed watchers expect only a quarter-point cut in interest rates. A full half-point cut would send the wrong signal to consumers and the stock market, they reason, inducing concern the economy is in free fall.

Only next week will tell.

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Bonds/Economy

Bond prices were falling this morning. The benchmark 10-year

Treasury note was lately down 8/32 at 104 2/32, yielding 5.205%.

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International

European markets were falling this morning, adding to earlier losses after Dell's warning.

London's

FTSE

was down 37.80, or 0.61%, to 6171.50. Across the channel, Paris'

CAC-40

was off 6.27, or 0.11%, to 5839.46. Frankfurt's

Xetra Dax

was down 20.37, or 0.31%, to 6631.16.

The dollar was trading at $0.9302 euro this morning. The euro has been slowly gaining in the past few months as the U.S. dollar weakens in the face of a slowing domestic economy. Fund managers are now forecasting that Europe's economies will grow faster than the U.S. this year, according to a recent

Merrill Lynch

report.

Asian markets rose overnight.

Tokyo's key

Nikkei 225

index rose for a seventh straight day Monday. It has been rebounding after hitting a 27-month low on Jan. 11. The index closed up 43.30, or 0.31%, to 14,032.42.

Hong Kong's key

Hang Seng

index closed over 16,000 for the first time since early October. The benchmark index closed up 1.04%, or 165.72 points, to 16,099.27.

The greenback was lately trading at 116.43 yen.

For more on world stock markets, check out

TheStreet.com's

global indices information.

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