Maybe you can sneak out of the office early and catch up on some late-afternoon television. The stock market really wasn't easy to look at. Ticker tapes ran with red despite a pretty good-looking

employment report.

Unemployment remained at 4% in December, despite forecasts it would rise to 4.1%. New nonfarm jobs rose to 105,000, just above forecasts of 102,000 and a bit of a rebound from November's surprisingly low 94,000. But growth in average hourly earnings came out just above forecasts at 0.4%, indicating that wage inflation continues to grow. Economists were expecting a 0.3% increase.

On one hand, the employment report is a pretty good sign the economy isn't taking a joyride to hell in a hand basket. Fears of a recession may not completely abate, but they can take a little solace in the fact that the employment situation overall is still quite strong. Those aren't traditionally the hallmarks of a recession, when the economy has negative growth for at least two consecutive quarters.

But the

Dow Jones Industrial Average and

Nasdaq Composite Index weren't really paying the data much mind, focusing instead on earnings warnings that continued to flow in across the board. Investors were focused on the prospect of a few difficult quarters before the results of this week's

interest-rate cut can be felt. And they were likely engaging in some profit-taking in the wake of Wednesday's massive stock-market run up.

Both major market indices were off. The Dow was lower by almost 200 and the Nasdaq is below where it opened the New Year. Manufacturers and financials were the big negative story of the day.

Volume was far lighter than it was yesterday, when the

New York Stock Exchange passed 2 billion shares for the first time ever. Today, there wasn't a whole lot of rally support out there, with stocks falling to the downside as volume dried up -- a common complaint during the dark days of November and December.

Fear and Loathing in Financials

Aside from internals, perhaps the most-watched thing today was

Bank of America

(BAC) - Get Report

. Trading in the company's stock was halted as the day started, pending some news. The market waited and speculated just what news from one of America's largest bank could be. Most bets were on bad news and the markets quickly sank. Bank of America has been about 6.8% lower since it opened around 10:30 a.m. EST.

So, what was the news?

Well, there really wasn't any. Bank of America released a terse one-paragraph statement that said: "We know of no basis to support speculative rumors about our operations. We are conducting business as usual. The company has not experienced any significant losses in derivatives or other trading activities. And the company is comfortable with its guidance for credit quality in 2001 as provided to investors last month."

Nobody listened. Nobody cared. The concern was out there.

Markets accentuated the negative and dragged the entire sector lower. On the Dow,

J.P. Morgan Chase

(JPM) - Get Report

,

Citigroup

(C) - Get Report

and

American Express

(AXP) - Get Report

were all way off. The three major indices that track financials, the

American Stock Exchange Securities Broker/Dealer Index

, the

Philadelphia Stock Exchange/KBW Bank Index

and the

Nasdaq Financial 100

were all off more than 3% as people focused on credit problems and not the Fed.

With two of California's biggest power companies,

Edison International

(EIX) - Get Report

and

PG&E

(PCG) - Get Report

, pushed to the brink of bankruptcy and see their credit ratings get downgraded to near-junk or junk status, the major fear is that bad loans will destroy the financial sector. This terror is quite real, given the fact that some companies have already been burned by bad loans --

and the Fed cut might not help.

Toward the end of December, the

Federal Deposit Insurance Commission

, which is that little FDIC thing that ensures your money will be in the bank when you need it, said that there could be more trouble ahead for banks. Bad credit quality, or rather, "bad loans," were one of the myriad reasons cited as problematic.

Xerox's

(XRX) - Get Report

uncertain future and massive debt

has shaken banks, while

First Union

(FTU)

had already been burned by a bad loan , when news surfaced in November that consumer products maker

Sunbeam

(SOC)

, a First Union client, was in trouble.

Financials are a scary place to be right now, with market forces split between two camps. One says that the Fed cut will help financials out, allowing them to avoid bad loan problems and other woes. Others think financials are in trouble. On Wednesday the glass was half full and the sector had heady gains. Today, that glass was clearly half empty in investors' eyes.

Churn, churn, churn

The

Morgan Stanley Consumer Index

rose, while the

Morgan Stanley Cyclical Index

fell -- a complete reversal from yesterday's action. The

Dow Jones Utility Average

gained after a huge stumble yesterday, while the

Dow Jones Transportation Average

fell. That's another reversal from yesterday.

Technology -- well, technology just stinks. Networkers, large-cap tech, dot-coms, wireless names, semiconductors, PC makers, computer peripherals, telecommunications and biotechs were all way lower.

And the Dow was like that old lady from the MedicAlert commercial. It fell, but couldn't get up.

Death By Analysis

3M

(MMM) - Get Report

stands for Minnesota Mining and Manufacturing. The nickname just avoids unnecessary typing for lazy people.

Lehman Brothers

today said 3M's recent rise in value in the wake of the hiring of new chief executive and former

General Electric

executive Jim McNerney has given it little room to go any higher. Since his hiring in December, 3M has jumped about 20%. Lehman cut 3M's 2001 earnings estimates to $4.80 a share from $5.20, telling investors that it thinks the company is fully valued and that a slowdown in technology spending will affect the bottom line. And that estimate just isn't low, it's 45 cents lower than the average Wall Street estimate -- $5.25 a share.

Supporting the move, Lehman said that 3M's electronics and communications segment, which accounted for 17% of its sales in 2000, would see lower demand for its products as a result of slower spending in technology. So will 3M's optical system branch, which makes things for liquid crystal display screens.

3M fell 6.4% and helped drag on the Dow.

Lehman didn't stop with 3M, however. The brokerage also trimmed

Alcoa's

(AA) - Get Report

fiscal estimates, cutting its 2000 earnings per share estimate to $1.78 from $1.82, and its 2001 estimate to $2.25 from $2.35. This puts Lehman more in line with the rest of its friends on Wall Street. The analysts' average estimate for 2000 was $1.79 a share, while 2001 is $2.22 a share.

Robertson Stephens

snipped

Wal-Mart's

(WMT) - Get Report

2000 and 2001 earnings estimates after the major retailer had said yesterday that fourth-quarter

same-store sales would come in below estimates. The company originally wanted sales to rise between 3% and 5%, but feeling the pain of many retailers, cold temperatures and slow sales hit results.

Today, in reaction,

Robertson Stephens

cut Wal-Mart's fiscal 2000 earnings per share estimate to 1.40 from $1.42, and 2001 to $1.60 from $1.68.

But not every analyst shop was in agreement.

Prudential Securities

raised Wal-Mart's 2000 estimate to $1.41 a share from $1.40 and 2001 to $1.62 from $1.61, saying that it had already factored a bad holiday season into estimates.

Elsewhere on the blue-chip front,

Goldman Sachs

took down

Hewlett-Packard's

(HWP)

2001 earnings estimates, trimming it to $1.75 from $1.85. It also knocked down

IBM's

(IBM) - Get Report

2001 estimate, knocking it to $4.95 from $5.00.

UBS Warburg

jumped in the fray and moved H-P's first-quarter forecast to 41 cents a share from 45 cents, and its full-year 2001 to $1.91 a share from $1.95.

The consensus first-quarter estimate, according to

First Call/Thompson Financial

, was 43 cents a share, while the full-year was $1.93. Goldie's pretty bearish on H-P, moving its estimate 18 cents below the average estimate on H-P's fiscal 2001.

Here's a snapshot on how the five affected blue-chips were doing. Again, check out 3M. It's getting socked!

Market Internals

Breadth stunk. Volume was lower than yesterday's record-setting pace.

New York Stock Exchange: 1,150 advancers, 1,636 decliners, 767.3 million shares. 99 new 52-week highs, 6 new lows.

Nasdaq Stock Market: 1,187 advancers, 2,340 decliners, 1.1 billion shares. 40 new highs, 52 new lows.

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Most Active Stocks

NYSE Most Actives

  • Lucent (LU) : 17.7 million shares.
  • Citigroup (C) - Get Report: 15.2 million shares.
  • General Electric (GE) - Get Report: 12.1 million shares.

Nasdaq Most Actives

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Sector Watch

As mentioned earlier -- technology wasn't pretty today. Here's a more specific look.

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Bonds/Economy

Treasury notes are higher as traders remain convinced the

Federal Reserve will cut interest rates again by the end of the month. The long bond, after falling earlier in the session, has checked its slide. It should finish higher if its daily drift over the past week holds true. Treasury yields are near their two-year lows.

The unemployment data released today was not as bad as feared, but it didn't change the market's mood. Some analysts are guessing the currently available payroll and unemployment information will be revised and next month's report will be a lot worse. The morning didn't go by without a flutter though. Misleading news about the financial services sector being exposed to defaulting California utilities supplied the tension. The equity market fell sharply and shorter treasuries shot upwards until Bank of America denied rumors rattling the markets.

The benchmark 10-year

Treasury notelately was up 12/32 to 105 22/32, lowering its yield to 4.996%.

In economic news, the

employment report

(

definition |

chart |

source

) had non-farm payrolls, which are new jobs created during the month, rising by 105,000 in December. The government accounted for more than half of this growth, while privately held manufacturers continued to lose jobs. The unemployment rate remains at 4%, slightly better than expected. Economists polled by

Reuters

had forecasted it at 4.1%.

The augmented unemployment rate rose 7% in December as compared to 6.9% the previous month. It differs from the regular unemployment number by also counting those unemployed individuals who are not actively looking for a job but will begin working again if offered one.

The average hourly earnings increased 0.4%, little more than expected, as the annual rate edged up to 4.2% from 4.1%.

New home sales

(

definition |

chart |

source

) fell 2.2% to 909,000 in November, a little more than predicted, from 929,000 in October. Due to the low mortgage rates, economists had expected the number to come in at 913,000. It has now declined for the third consecutive month but remains well above the level it had dipped to earlier last summer.

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International

Overseas markets reacted positively ahead of the U.S. open. Europe was broadly positive, as telecoms and banks were gaining.

Not anymore. The American downturn has sapped a lot of the European strength, leaving London and Frankfurt clinging to slim gains at the end of their trading day. France fell like, well, France usually does when faced with tanks and troops.

London's

FTSE

gained 12.5 to 6198.1, as investors dipped back into technology. Germany's

Xetra Dax

rose 8.8 to 6385.3, while Paris'

CAC

fell 73.9 to 5742.1.

Japanese markets traded for the first time in 2001 late last night, well, that is, judging by New York clocks. And although the

Nikkei

missed out on a 7% first day dip on the

Nasdaq Composite Index, a massive rate cut rally and yesterday's rotation, it caught up today. The Nikkei rose 176.12 to 13,867.61. Hong Kong's

Hang Seng

rose 212.58 to 15,447.61.

The euro last traded at $0. 9538 cents. The yen at 116.11.

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