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Today's Market: Volatility Marches Back -- Yesterday's Stock Winners Turn South Today

The market's recent darling -- financials -- lost a little of their luster today.

Another day fraught with volatility has ended with the major averages ending basically flat. We're well into freak-out season now, and though that may not have manifested itself in large moves by the major indices, traders and managers are running stocks up, down and around on worries of earnings misses and lots of other rumors. Breadth was mixed, but investors did come in to support a number of tech sectors in the afternoon.

A downgrade of

Intel

(INTC) - Get Report

, and significant losses in

Hewlett-Packard

(HWP)

related to concerns of diminished PC demand took the

Dow Jones Industrial Average down today, as it lost 51.05 to 11,182.18, with those two stocks accounting for 65 points of negative drag in the Dow.

The

S&P 500 gained 2.92 to 1484.91, and the

Nasdaq Composite Index gained 44.38 to 1484.91. The

Russell 2000 rose 1.56 to 533.99, and

TheStreet.com Internet Sector

index gained 5.95 to 799.25.

Festering worries about something a little more serious than a mild economic slowdown continue to hold this market, and managers have been quick to take one company's earnings warning and use it as tar and feathers for other related companies.

Intel's downgrade by

Banc of America Securities

(which also downgraded chip maker

Advanced Micro Devices

(AMD) - Get Report

) was due to worries about declining demand from PC makers, a point underscored by

SCI Systems

(SCI) - Get Report

.

SCI

warned of lower fiscal first-quarter earnings, and it counts H-P and

Compaq

(CPQ)

among its biggest customers.

There's been considerable debate among analysts for the last few months that a slowdown in chip demand is coming, but the debate has centered on how significant it will be, and whether it's considered temporary, or seasonal, or much more serious than that. With high oil prices sparking fears that companies will have to limit capital spending in coming months, coupled with concerns that the euro's

weakness is going to eat into corporate America's bottom line, the market seems uncertain, strategists said.

"It's a legitimate issue; the economy is slowing, and we've already seen a couple of messes along the way," said Barry Hyman, chief investment strategist at

Weatherly Securities

, referring to SCI and last week's warning by

DuPont

(DD) - Get Report

.

Tomorrow, the first earnings test --

Oracle

(ORCL) - Get Report

. The software behemoth could show some erosion in earnings due to weakness related to the euro when it reports tomorrow. Oracle does about 20% of its sales in Europe, and the stock was strong today, gaining $2.44 to $81.81, but that's after losing nearly $12 in the last three trading sessions.

Cisco

(CSCO) - Get Report

strengthened today, as did

Sun Microsystems

(SUNW) - Get Report

but Gary Kaltbaum, strategist at

J.W. Genesis

, said these moves aren't evident of strength, as those tech bellwethers are near the low end of their recent range.

"It's most definitely the time to be on the defensive here," said Kaltbaum, who said the worries over declining PC demand hurting chips and software companies is overstated. "I don't listen to all that -- but you just have to be on the defensive, because the volatility is unprecedented."

Brokerages and Telephones

Volatility reared its ugly head today in the brokerage stocks, which pulled back from recent dizzying heights with some acknowledgement that the recent

consolidation among the two-ton financial companies may be nearing an end after the announcement that J.P. Morgan will be acquired by Chase Manhattan.

Other stocks considered takeover plays, including

Lehman Brothers

(LEH)

and

Bear Stearns

(BSC)

, were both down today. Lehman dropped $9.13, or 5.8%, to $149.38, and Bear lost $2.56 to $69.06. J.P. Morgan lost 2.3% today, and Chase dropped 4%. If consolidation among bulge-bracket firms dies down, the sense is that these stocks are overvalued.

TST Recommends

"There's so much information and so many people playing the momentum game that any time there's some positive news, money runs to that area quickly and then runs out of that area," said Eugene Profit, chief investment officer of

Profit Investment Management

in Silver Spring, Maryland.

It ran into

Knight Trading

(NITE)

today, ending up 22.5%, on speculation that the market maker could be

acquired by

Morgan Stanley Dean Witter

(MWD)

. That speculation has picked up after the acquisition of a couple of other large market-makers.

AT&T

(T) - Get Report

got a boost in late trading on trading desk

rumors that

Liberty Media Group's

John Malone may replace the AT&T's chairman, Michael Armstrong, but the company declined comment. The stock ended up $1 to $31.75.

Market Internals

Breadth was mixed on strong volume.

New York Stock Exchange: 1,376 advancers, 1,453 decliners, 1.07 million shares. 143 new 52-week highs, 53 new lows.

Nasdaq Stock Market: 1,998 advancers, 1,978 decliners, 1.6 million shares. 78 new highs, 81 new lows.

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Most Active Stocks

NYSE Most Actives

  • Chase Manhattan: 41.8 million shares.
  • AT&T: 32 million shares.
  • Nortel (NT) : 30 million shares.

Nasdaq Most Actives

  • Cisco: 74 million shares.
  • Intel: 68.5 million shares.
  • Knight Trading: 45 million shares.

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Sector Watch

Transportation stocks had a strong day. The

Dow Jones Transportation Average

rose 1.4%, and the

Amex Airline Index

gained 2.3%. The

Dow Jones Utility Average

hit a new all-time high of 400.06 today, but ended weak, falling 0.6 to 394.66.

The

Philadelphia Stock Exchange Computer Box Maker Index

lost 0.9%, while the

Philadelphia Stock Exchange Semiconductor Index

, undaunted by Intel's woes, gained 1.8%.

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Bonds/Economy

Bond prices rose today as oil prices moved off their recent highs. Treasury traders were paying close attention to the corporate bond market, where more than usual new issues are competing for investor dollars.

Meanwhile, while there is no major economic news today,

fed funds futures are discounting lower odds than ever that the

Fed will hike interest rates again this year. The December fed funds contract is putting the odds of a hike in the rate to 6.75% from 6.5% currently at just 5%, down from 21% yesterday.

The benchmark 10-year Treasury note lately was up 10/32 at 100 3/32, dropping its yield to 5.737%.

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International

Techs and telecoms were a drag on European markets today. The

FTSE 100

closed down 77.30 to 6478.20. Across the channel, the

CAC 40

in Paris ended off 128.91 to 6568.89, and the

Xetra Dax

in Frankfurt was off 129.49 to 7006.26.

The embattled euro was lately trading at $0.8584 amid rumors that the

European Union

would intervene to prop up the currency, rumors that have been reportedly denied.

Tokyo stocks rose overnight after two days of losses, while markets in Korea and Hong Kong were closed for a national holiday.

Japanese shares climbed higher after mutual and pension fund managers vigorously picked up selected technology shares in an otherwise lethargic trading day. The

Nikkei 225

index rose 150.29 to close at 16,190.52.

The greenback slowly inched higher against the yen and was lately trading at 107.08 yen.

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