Today's Market: Investors Beat Up Tech Stocks -- Again

<LI>ABN-Amro says optical networkers look cheap.</LI> <LI>Qualcomm gains as China Unicom deal looks like it will happen.</LI>
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(Updated from 9:43 a.m. EST)

Tech stocks are getting another beating.

Some good news for wireless technology leader

Qualcomm

(QCOM) - Get Report

wasn't enough to give a boost to tech sentiment this morning. The company, whose prospects in China once seemed weak, may finally do a deal with China's No. 2 wireless carrier

China Unicom

.

Qualcomm reported that China Unicom could begin awarding contracts to build a 10 million subscriber network using Qualcomm's proprietary CDMA technology by 2001. Qualcomm was gaining 5%.

But Qualcomm is not enough to fire the

Nasdaq, and it doesn't look like a partially deflated bounce on the Comp on Friday will be able to follow through today. The Nasdaq was lately off 71 to 2574. The

Dow Jones Industrial Average, meanwhile, was gaining 33 to 10,407. And the broad-based

S&P 500 was slipping 4 to 1312.

A second correction to once-frothy tech valuations over the past two months has taken them sharply lower, but that's not enough to lift tech stocks this morning.

ABN-Amro

analyst Dave Kang this morning recommended buying optical networkers

Corning

(GLW) - Get Report

,

JDS Uniphase

(JDSU)

and

Digital Lightwave

(DIGL)

on "trading weakness." Only Digital was trading higher.

As concerns over a slowdown in capital spending on technology surfaced in September, investors began to sell PC-makers, semiconductor-makers and networking stocks with a fury. And now the price tags of many of these stocks are far more palatable.

Last Thursday, the tech-heavy Nasdaq dropped 109 to 2598, closing below 2600 for the first time since Aug. 12, 1999. The technology-laden index is now almost 50% below the highs it hit in March.

Meanwhile, mutual funds certainly have plenty of cash to spend. On Oct. 31, the average stock fund's cash stake hit 6%, according to the

Investment Company Institute

, the mutual fund industry's trade group. That's up 13% from a month earlier and the highest it has been in three years. By tracker

TrimTabs.com's

math, cash is currently at around 6.5% of the average stock fund, and about half the money invested in funds since the end of March is currently sitting in cash.

But it is unclear how much further the major stock market indices may need to go before investors are ready to step back up to the plate with real enthusiasm. In historical terms, valuations are still

relatively high.

Meanwhile, a slowing economy is both good and bad news. As data showing an economic slowdown accumulate, the likelihood grows of a change in the Fed's policy outlook on inflation when it next meets Dec. 19. This is important because a move away from a bias toward concerns about inflation is the first step towards an interest-rate cut. And lower rates help stimulate economic growth by letting consumers and companies borrow money more cheaply.

It is the slowing economy that has also spurred a number of companies to reduce earnings targets in the past month. And it looks like things might get worse on this front before they get better.

Even companies that have already warned may be still too optimistic. Specialty semiconductor-maker

Altera

(ALTR) - Get Report

, for example, last week announced that its sales might not grow at all in the fourth quarter. The company had already said that sales of its semiconductors would grow at the lower end of a previous 12% to 15% forecast.

For the fourth quarter, earnings research firm

I/B/E/S

has already tracked 300 earnings warnings, compared with 240 for the entire fourth quarter in 1999. And earnings warning season doesn't traditionally even begin until the second week of December.

According to I/B/E/S, announcements are coming out in the auto, technology and retail sectors. On the retail front, analysts are worried that holiday shopping won't be lucrative. As the economy slows and consumer confidence levels begin to fall, many retailers are trying to lure in consumers with sales. While sales give nice price breaks to consumers, they aren't good for profits.

At a time when technology stocks are gripped by volatility and a more thrifty consumer may drag on the profits of consumer cyclicals, some market-watchers say noncyclical companies that make consumer staples -- such as food -- may be poised for gains.

Newlyweds in that industry,

Pepsi

(PEP) - Get Report

and

Quaker Oats

(OAT)

, were greeted with mixed emotion. Pepsi was gaining 4.6% and Quaker was up 3.2%.

The maker of hot cereals, snacks and sports beverage Gatorade finally agreed to tie the knot with beverage giant Pepsi after an earlier bid and previous talks with cola rival

Coca-Cola

(KO) - Get Report

and France's

Danone

(DA)

fell through. Pepsi agreed to buy Quaker for some $13.4 billion in stock, while Pepsi's Chairman and CEO Roger Enrico said he would transfer both titles to Quaker President Steven Reinemund. Quaker Chairman and CEO Robert Morrison will also remain at the newly merged firm.

Pepsi, initially attracted by Quaker's Gatorade brand, first offered to buy the drinks and cereal maker in early November, but Quaker rejected the bid.

Headlining today's economic events is the October

new home sales report, which showed that new home sales slipped 2.6% in October to 928,000. A measure of the selling rate of new one-family houses, the data are considered a good gauge of near-term spending for housing-related items and of consumer spending in general. The number was expected to slip to 910,000 from 946,000 the previous month.

Housing is an important segment of the economy because, historically, changes in consumer spending patterns have appeared first in autos and housing. If buying in new homes begins to slow, housing starts slow, which can cut into employment in the construction industry and, eventually, the lumber and home-furnishings industries.

Sales of new houses account for roughly 16% of all houses sold. Sales of existing (known as pre-owned) houses account for the other 84%.

And who knows? Just maybe there will be some resolution on the presidential elections today. A court in Florida's Leon County may decide by the end of today whether to allow a recount of thousands of ballots in the state. And that decision could determine who wins the U.S. presidency.

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Bonds/Economy

Treasuries are rallying because investors are increasingly optimistic that the

Fed will lower interest rates in the months ahead. The 10-year Treasury was up 7/32, to 101 31/32, yielding 5.484%.

Today's

Wall Street Journal

reports that the Fed is "leaning heavily toward" changing its assessment of the economy at the

Federal Open Market Committee's next meeting on Dec. 19. Such a move is seen as the first step in a process that could eventually lead the Fed to lower interest rates.

In the

statement it releases after meetings, the FOMC opts for one of three assessments of the economy. Either the risk of rising inflation is paramount, or the risk of slowing growth is paramount, or the two risks are in balance. Since early 1999, the committee has declared inflation the greater risk. It will probably switch to a risks-balanced assessment on Dec. 19, the Journal story suggests.

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International

European markets were giving back last Friday's gains this morning.

London's

FTSE

was down 25.20 to 6145.20 as it neared its midsession on weakness in market titans

BP Amoco

(BP) - Get Report

and

Vodafone

(VOD) - Get Report

.

Across the channel, Paris'

CAC-40

was 118.47 lower to 5810.03, while Germany's

Xetra Dax

was 109.28 lower to 6403.63.

The euro was rebounding at $0.8909.

Asian markets rallied for a second straight day overnight. Japan's

Nikkei 225

rose 119.40 to 14,954.73, while the Hong Kong's

Hang Seng

rose 117.81 to 14,559.24.

The greenback was lower to 110.63 yen.

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