This stock market should come with a warning -- "Note: Any rallies will self-destruct in 24 hours."
It didn't even take that long today. Proving again that
Alan Greenspan's words only go so far, the stock market was hit with heavy selling pressure following yesterday's post-close warning from
and an intra-day warning from
Bank of America
during today's session.
The collective might of the earnings announcements struck down the
Dow Jones Industrial Average, which lost 233 to 10,665, and the broad
S&P 500 Index, which dipped 25 points, giving back approximately half the gains it made yesterday on very heavy volume.
The market moved up sharply yesterday after calming
words from the Fed chairman, who acknowledged the recent slowing in the economy and seemed to indicate that the Fed was potentially moving toward a more accommodative stance.
But, Apple's and Bank of America's warnings served to remind investors of receding demand for technology, as well as worsening credit quality, conditions that cannot be wished away by any kind of words from the venerable Fed head. Significant losses were witnessed in the financial sector, along with computer makers and semiconductors, as analysts responded to Apple's warning by downgrading other computer makers, and money managers responded by taking those sectors apart.
Apple announced yesterday that fiscal first-quarter sales and revenues would fall short of expectations. In fact, the company's going to miss its revenue estimates by 40%. Apple, not too surprisingly, was one of the day's biggest losers, tanking 16% to $14.31. Following a warning by PC maker
, the entire sector resembles
Fresh Kills Landfill after morning delivery. Several firms, including
Credit Suisse First Boston
, stepped up and knocked down earnings estimates and ratings on the
Philadelphia Stock Exchange Computer Box Maker Index
shed 7.3% today.
lost 6.4% in sympathy, and on rumors of an earnings warning which didn't materialize.
finished at $18, down 11%, a 52-week low.
Not unrelated to this,
fell $4.25 to $31.75, a 52-week low, on 90 million shares. It was one of the significant drags on the Dow, causing 26 points of the decline on the 30-stock average today.
Salomon Smith Barney
analyst Jon Joseph, who became cautious on chip stocks
in July, said in a comment today that Intel's fourth-quarter numbers look to be the worst in over a decade, and that's just not a happy song.
Philadelphia Stock Exchange Semiconductor Index
lost 4.5% today.
Banks Get Socked
Bank of America was hit hard after the parent of the nation's largest bank said it will
miss fourth-quarter earnings estimates because of loan losses and a decline in investment banking and trading results. The financial stocks, already under pressure, sunk on the news, announced at about 1:45 p.m. EST. Bank of America dropped $3.19 to $38 today, with
losing 3% and
American Stock Exchange Broker/Dealer Index
lost 3% today, while the
Philadelphia Stock Exchange/KBW Bank Index
The reasons for the shortfall aren't surprising, when looking from a macroeconomic view. Investment banking has declined as the IPO market dried up over the summer and into the fall, and with stocks dropping sharply, trading becomes harder. Meanwhile, loan losses and defaults are occurring as the Fed, and banks themselves, have taken steps to tighten credit after relatively loose credit resulted in many companies receiving money without being able to deliver results. Consumer debt has increased sharply as well, and despite the Fed boss' assurances yesterday, the repercussions of the asset bubble are sure to be played out for many months coming.
It doesn't give traders much confidence.
"This has been the fear, in spite of interest rates going down," said Scott Curtis, trader at
"Lower interest rates don¿t mitigate loan problems. It might be a one-bank event situation, but I wouldn't bet on it."
The double-team in warnings took some of the energy out of the market, after impressively bouncing from recent lows with a record rally yesterday in the Nasdaq and strong gains on the Big Board. Stanley Nabi, vice president of
DLJ Asset Management
, surmised traders over-estimated the significance of Greenspan's words yesterday, and wondered if people weren't already getting ahead of themselves. Where there was once an excess of pessimism regarding the Fed's stance and future actions, a premature burst of optimism was let out yesterday, he said.
"What happened yesterday was really a technical rebound sigh of relief," said Nabi. "Today, there are second thoughts."
The Federal Reserve's last meeting for this year is on Dec. 19. It's expected the Fed will likely shift to a so-called neutral directive, which will bolster confidence in the market as Greenspan's words did yesterday. But whether a rate cut is in the offing is up in the air; the Fed will likely want to see more evidence of softness in the labor markets before fine-tuning the economy with a rate cut from the current 6.50%
fed funds rate.
Breadth was ugly on torrid volume.
New York Stock Exchange: 1,219 advancers, 1,669 decliners, 1.364 billion shares. 155 new 52-week highs, 85 new lows.
Nasdaq Stock Market: 1,540 advancers, 2,392 decliners, 2.263 billion shares. 72 new highs, 237 new lows.
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Most Active Stocks
NYSE Most Actives
- Lucent Technologies (LU) : 29.7 million shares.
Nokia (NOK) - Get Report: 26.2 million shares.
Compaq (CPQ) : 24.4 million shares.
Nasdaq Most Actives
- Intel: 95.5 million shares.
Cisco (CSCO) - Get Report: 70 million shares.
WorldCom (WCOM) : 57 million shares.
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Mainframe software makers had a rough go of it today, slipping in sympathy with the PC makers.
ended down 4.6%, and
Capital goods companies didn't fare well today at all.
dropped 3.9% today; Dow component
dipped 4.2%, and the
Morgan Stanley Cyclical Index
lost 2.6% in today's trading.
What was improved today? Insurance companies. In times like this, you need insurance! The
S&P Insurance Index
moved up 1%, and
both reached 52-week highs today.
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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 was up 28/32 at 103 9/32, dropping its yield to 5.311%.
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.
Yesterday Treasuries 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
), forecasting increased consumer activity generally. And third-quarter
productivity and unit labor costs
) were revised lower and higher, respectively.
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An early rally in Europe was washed away by the weakness on Wall Street today.
was down 25.7 to 6273.30. Across the channel, Paris'
ended down 9.65 to 5985.24, while Frankfurt's
finished down 14.84 to 6622.25.
The euro was strengthening again after taking a breather yesterday. It was lately trading up to $0.8914. It has been gaining in the past few weeks.
Asian markets surged overnight on optimism about the Nasdaq's jubilant ride higher on Tuesday and the prospects of a U.S. interest rate cut in coming months. Tokyo's
rallied, but pared its gains into the close on the Apple warning. It closed up 194.32, or 1.3%, to 14,889.37. Hong Kong's
rose on strength in property shares, closing up 3.6%, or 525.74 points, to 15,098.95.
The greenback was lower to 110.27 yen.
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