Today's Market: It's a Hard Knock Life for Stocks

<LI>Day after spectacular rally, both Dow and Nasdaq retreat.</LI> <LI>Financials continue to gain as investors hope for interest rate cut.</LI> <LI>Apple drags computer makers lower.</LI>
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Markets were learning the facts of life one day after a mammoth rally sent the

Nasdaq Composite Index up more than 10% for a record-shattering performance.

After yesterday's close,

Apple

(AAPL) - Get Report

warned about future earnings.

And what a warning it was. Instead of coming in with expected revenues of $1.6 billion in the first quarter, the company said it would only pony up $1 billion in revenue, a 40% shortfall. You can bet that got the analysts going. A plethora slashed estimates for Apple and cast a deathly pall over the already ailing computer-making industry.

It was just five days ago that both

Gateway

(GTW)

and specialty chip maker

Altera

(ALTR) - Get Report

warned that their future earnings would miss estimates. Can it get any more crystal clear that the tech sector won't be experiencing the torrid growth of recent quarters.

Credit Suisse First Boston

analyst Kevin McCarthy had something to say about it, cutting the rating and revenue estimates not only on Apple, but also on Gateway and

Compaq

(CPQ)

. Rivals

Dell

(DELL) - Get Report

,

IBM

(IBM) - Get Report

and

Hewlett-Packard

(HWP)

saw their future forecasts reduced as well.

Said McCarthy: "We can no longer ignore signs of shriveling demand."

And the boxmakers, as the folks who make computers are known,

suffered the fury of investors scorned. The

Philadelphia Stock Exchange Computer Box Maker Sector

, which tracks the industry, fell 6.8%.

The

Dow Jones Industrial Average was getting buried, blindsided by the stumble in old-technology names Hewlett-Packard and IBM -- the same guys who helped add support to yesterday's rally.

They weren't the only stinkers. Chipmaker

Intel

(INTC) - Get Report

and software company

Microsoft

(MSFT) - Get Report

were weak. Intel was off 8.7% and there were conflicting reports about whether there was a damaging report that came out earlier today from an analyst.

Weakness in stocks was being exacerbated by a flight out of defensive plays like pharmaceutical

Johnson & Johnson

(JNJ) - Get Report

and aircraft manufacturer

Boeing

(BA) - Get Report

, whose stock price has been soaring all year.

ExxonMobil

(XOM) - Get Report

was getting hit, slipping 2.7%, as the price of oil stumbled below $30. It wasn't long ago, remember, that the markets were roiled because a barrel of crude had climbed above $35. Lower crude prices hurt oil companies' profit margins.

Meanwhile, the exodus of

General Electric's

(GE) - Get Report

upper management to other blue-chip companies continued. One day after

3M

(MMM) - Get Report

snagged James McNerney to be its new chief executive, the home improvement chain

Home Depot

(HD) - Get Report

announced that Robert Nardelli, former president of GE's power systems unit, would become its

new CEO and president.

Offsetting losers

The

Morgan Stanley High-Technology 35 Index

, which tracks some of the biggest names in the business, was off 2.4%. Investors managed to offset those losers by rushing into wireless and telecommunications names, which were pushed higher by

Qualcomm

(QCOM) - Get Report

and

Nokia

(NOK) - Get Report

. Nokia yesterday put out a

bullish outlook on its growth prospects.

Financials, an often-overlooked component of the tech-heavy Nasdaq, gained momentum today after the dovish comments yesterday from

Federal Reserve Chairman

Alan Greenspan led to speculation the policy-making Fed will adopt a neutral position about the risks of inflation at its Dec. 19 meeting. Investors are beginning to believe the Fed will soon begin to cut interest rates. That helps financials because lower rates spur consumers and corporations to borrow more. The

Nasdaq Financial 100

rose 2.1%.

Market Internals

Boy, where'd all that volume come from? For the past few weeks, market internals have been all about losers beating winners on thin trading. But after a couple of sessions with heavy volume, the buyers have returned, especially in the wake of yesterday's rally.

New York Stock Exchange: 1,338 advancers, 1,421 decliners, 738 million shares. 124 new 52-week highs, 60 new lows.

Nasdaq Stock Market: 1,757 advancers, 1,902 decliners, 1.3 billion shares. 67 new highs, 141 new lows.

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Most Active Stocks

NYSE Most Actives

  • Lucent (LU) : 17.3 million shares.
  • Nokia: 14.9 million shares.
  • Compaq: 13.5 million shares.

Nasdaq Most Actives

  • Intel: 53.2 million shares.
  • Cisco (CSCO) - Get Report: 42 million shares.
  • WorldCom (WCOM) : 33.6 million shares.

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Sector Watch

Cyclicals were easing, after rallying 8.7% over the past three days. The

Morgan Stanley Cyclical Index

, a collection of stocks like drug makers, heavy materials and automakers, was off 1.7%. And fittingly, the

American Stock Exchange Pharmaceutical Index

was off 3.1%.

The

Philadelphia Stock Exchange/KBW Bank Index

rose 2.3%, extending the pro-Bush financial rally for a second day that's been fueled by the Fed's comments that show it knows an economic slowdown has begun.

And as the price of crude oil futures continue to slide, now dipping below $30 a barrel on the

New York Mercantile Exchange

, so do the fortunes of the

American Stock Exchange Oil & Gas Index

, which fell 2.5%.

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Bonds/Economy

Treasuries are getting a lift from the downturn in stock prices. The rally is pushing yields down to new lows for the year.

The benchmark 10-year

Treasury note lately up 16/32 at 102 29/32, dropping its yield to 5.36%, another new low for the year.

Falling stock prices increase the appeal of bonds as an alternative investment and indicate waning confidence in the economy, calling for lower interest rates and higher bond prices.

Treasuries yesterday staged a huge rally in response to remarks by Alan Greenspan in which he acknowledged that the economy is at risk of slowing too much. Presumably, the Fed will lower interest rates in the next several months to keep that from happening.

Today's economic data, while not market-moving, is marginally negative for Treasuries. Mortgage activity increased, according to the

Mortgage Applications Survey

(

definition |

chart |

source

), forecasting increased consumer activity generally. And third-quarter

productivity and unit labor costs

(

definition |

chart |

source

) were revised lower and higher, respectively.

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International

European markets were crumbling at the end of their trading day following early morning strength.

London's

FTSE

was off 21.9 to 6277.1, despite the fact that technology stocks were rallying. Unfortunately for the index, oil- and drug-related companies fared poorly as the price of oil continued to slide and people moved out of defensive areas following yesterday's big rally in the U.S.

Frankfurt's

Xetra Dax

rose 23.9 to 6660.9, as banks and technology moved higher. Paris' CAC fell 9.7 to 5985.2.

People have been keeping a close eye on the euro lately. And with good reason. After slumping for much of the fall, the currency last traded at $0.8875, an improvement from yesterday. The euro has been moving up over the past few weeks. The yen traded at 110.36.

Asian markets, which have a lot of technology-related companies, have been tracking the

Nasdaq Composite's movements lately. And following yesterday's incredible 10% rally, both Japanese and Hong Kong markets were much, much nicer. Japan's

Nikkei 225

rose 194.32 to 14,889.37, while Hong Kong's

Hang Seng

gained 575.74 to 15,098.95.

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