(Updated from 9:42 a.m. EST)
The phantom of economic recessions past descended upon the market again this morning following the most recent bout of earnings warnings. Tuesday's record-breaking rally seemed like oh-so-distant a memory.
Optimism generated Tuesday about a year-end-rally was first tested yesterday by earnings warnings from
Bank of America
The latest round of earnings warnings didn't exactly lift Wall Street's spirits. Last night e-business service provider
cut its third-quarter earnings forecast to a loss of 16 cents a share, citing tightening technology spending among companies. Analysts polled by
First Call/Thompson Financial
were expecting a profit of 8 cents a share. And toy-maker
also warned last night of
weak results and said it would cut its dividend and increase layoffs, partly blaming weakness in Pokemon trading cards. Scient was off 40.3%, while Hasbro was falling 24.9%.
And then mobile-phone firm
announced this morning 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 7%.
There was also some pretty bad news out for software behemoth
, which saw its earnings targets cut by
this morning to $1.88 from $1.91. Microsoft was losing 7% in early trading.
Dow Jones Industrial Average was lately off 11 to 10,655. The tech-heavy
Nasdaq Composite Index lost 51 to 2746. And the
S&P 500 moved down 4 to 1347.
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. Motorola
first lowered its financial estimates the fourth quarter and next year about two months ago. At that time, it blamed the weak euro for its troubles.
It can't do that this time around. Today the euro is trading at an 11-week high as currency traders bet on the relative weakness of the U.S. economy vs. European economies.
Second warnings like these are particularly worrying because they indicate how off the mark projections from analysts and companies have been -- and will likely continue to be. Tuesday it was Apple that warned a
second time and last week it was specialty chipmaker
. That pressure from warnings isn't expected to let up, as fourth-quarter confession season -- that pre-reporting time when companies warn if they expect to miss targets -- doesn't usually even start until the second week of December. Earnings tracker
is projecting this quarter's earnings confession season will be the busiest since the firm started collecting their confession data in 1996.
Apple and Bank of America, which yesterday warned about an
earnings miss, had already broken the boom of optimism brought on by
Federal Reserve Chairman
Alan Greenspan's soothing words on Tuesday. The warnings reminded investors what had them selling in the first place -- receding demand for technology and worsening credit quality. And they revived fears that a recession looms somewhere on the horizon.
In his speech, the G-man hinted that the
Federal Open Market Committee would move its outlook for the economy to neutral, where it says the risks of inflation no longer outweigh the risks of a recession. A move to neutral would be a first step toward an interest-rate cut, which would spur consumers and companies to start spending more. Some worry that the Fed's program of interest-rate hikes, six increases since June 1999, yanked the nose of the economy down too hard and that we are headed for a recession.
But the fear in the market is that an interest rate cut may come too late.
Tomorrow's November jobs report should provide some clues to that question. This morning
initial jobless claims fell to 352,000 for the week ended Dec. 2, just above forecasts of 342,000 for the week, but lower than the previous week's 29-month high of 358,000.
Jobless claims are used to predict the all-important jobs report. One of the most important gauges of the health of the economy, the jobs report will be particularly important this time around considering the Fed's recent emphasis that tight labor markets are one of the remaining threats to inflation. The unemployment rate has been at a historically low 3.9%.
report today from market research firm
International Data Corp.
may at least soften the blow that has been battering PC-makers. The report says sales of and demand for notebook computers remain strong in the Asia-Pacific region and are helping to partly offset a sharp drop in U.S. PC-sales. IDC analysts warned, however, that consumer demand for personal computers will remain weak for the next two to three quarters before it picks up again.
isn't too optimistic about the outlook for the PC-making group, however. The securities firm lowered its estimates on Apple yesterday and this morning stepped in to lower its rating and earnings estimates on
. Hewlett has been trading lower since it issued a surprise earnings miss for the fourth quarter. Hewlett was off 2%.
IDC also revised its growth estimates for worldwide PC shipments in the fourth quarter to 19.6% versus the year-ago quarter from 20.3%.
Meanwhile, watch for second quarter earnings from chipmaker
today. National Semiconductor was falling 7.5%.
And, lest we forget, the elections debacle rages on. 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 in Tallahassee are entering their second day, where judges are being asked to throw out thousand of absentee votes, mostly for Bush.
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Treasuries were selling off this morning following a two-day rally on improved prospects for lowered interest rates in the coming months. The benchmark 10-year
Treasury note was lately down 7/32 at 103 1/32, yielding 5.346%.
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European markets tumbled following Motorola's warning this morning, but were lately inching back.
was down 92.50 to 6180.80. Across the channel, Paris'
was 64.12 lower to 5921.12, while Germany's
was losing 76.16 to 6546.09.
The euro was hitting an 11-week high, trading up to $0.8941. It has been gaining in the past few weeks as the U.S. dollar weakens in the face of a slowing domestic economy.
Asian markets slid overnight in sympathy with major U.S. indices, which gave up much of their Tuesday gains yesterday. Japan's
, which had already pared gains during the previous session on Apple's earnings warning, closed down 169.01 to 14,720.36.
In Hong Kong, losses in China Mobile were tempered by gains in property shares following the government's last land auction this year, and the
closed down 87.43 points to 15,011.52.
The greenback was higher to 110.50 yen.
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