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It's official: The market is not embracing this earnings season with open arms.

Major indices tumbled to new lows for the year Thursday, as a mixed bag of earnings and further concern about slower economic growth prompted investors to continue unloading their positions.

The potential for more trouble Friday arose after the bell as


(IBM) - Get International Business Machines Corporation Report

reported earnings both earlier and weaker than expected. In after-hours trading, Big Blue's stock was recently down 5% to $80.35.

Prior to IBM's surprise, the

Dow Jones Industrial Average

fell 125 points, or 1.2%, to 10,279, its lowest close for the year. The

S&P 500

lost 11.8 points, or 1%, to 1162, also a new 2005 low. The


fell 27.6 points, or 1.4%, to 1946, its lowest close since Oct. 26, 2004. Over the last two sessions, the Dow has lost 229 points and the Nasdaq has given up 58 points.

Declining stocks whipped advancing stocks by better than 3 to 1 and downside volume was about 80% in both Big Board and Nasdaq trading: 2.35 billion shares traded on the


and 1.9 billion traded over the counter. Volume rose as stocks fell and selling accelerated in the final hour of trading, technically bearish signs in a fundamentally bearish day.

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Weighing on the indices were a mixed bag of earnings and more bad news from

General Motors

(GM) - Get General Motors Company Report

, which now faces legal troubles in addition to slumping demand and huge debt.

Investors were not even in the mood for


(AAPL) - Get Apple Inc. Report

-picking, it seems. Instead, "slash and burn" may be a better metaphor.

Apple's shares have lost $6, or nearly 14%, over the course of the week, with more than half the loss occurring after the company's earnings beat forecasts by a wide margin. Apparently, the whisper numbers had Apple's results topping estimates by even more. And maybe the computer maker's shares, which have tripled over the past year, were overpriced.

Clearly, the underlying market mood remains somber, thanks to the overhanging effect of, until recently, surging oil prices. On Wednesday,



joined the growing bandwagon of companies feeling the pinch of higher gasoline prices.

Big Mac Indicator


(MCD) - Get McDonald's Corporation Report

was among those few companies raising first-quarter forecasts, which may provide some pop-psychology insight into the minds of consumers, who apparently are more in the mood for cheap comfort food than spending at retail stores.

Pepsi with those fries? First-quarter earnings at


(PEP) - Get PepsiCo, Inc. Report

likewise, topped estimates.

Whether or not this is indicative of any underlying trends remains to be seen. But there's no doubt that consumer sentiment has been hit and that growth forecasts are being revised downwards across the board.

After last week's tepid employment data, Tuesday's record high deficit and Wednesday's weak retail sales data, Thursday brought more evidence of what some are so far calling a soft patch, which is prompting a rotation out of economically sensitive stocks and into consumer staples.

On Thursday, the Commerce Department said that business inventories climbed 0.5% while their sales fell 0.4%, the largest drop in two years.

As for the jobs picture, weekly claims for unemployment slipped by 10,000 to 330,000, pointing to an average monthly employment growth of more than 170,000 payrolls, still way off the growth seen in February, which had prompted some to forecast a "Goldilocks economy" scenario.

The strength of the U.S. economy over the past few years has been supported by consumers confident in the ever-growing equity of their homes. But even that's at risk, if we are indeed witnessing a housing bubble.

Speculation is definitely there in the real estate market.

The Wall Street Journal

reported Thursday that a number of buyout firms and hedge funds are circling around ailing retailers such as

Neiman Marcus





and even

J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

. According to the paper, investors are less interested in turning these companies around as they are in selling some of the hot real estate they own.

Theoretically, there's still room for real estate speculation if the

Federal Reserve

, facing slower growth, won't be raising rates as aggressively as thought a few weeks ago.

The 10-year Treasury note rose 5/32 in price to yield 4.34% on Thursday.


Just to be on the safe side, investors still showed interest in Thursday's auction of Treasury-Inflation Protected Securities (TIPS). A decent bid for TIPS also came from indirect bidders, the group that includes foreign central banks. This contrasts, however, with signs of waning demand from foreign central banks at this week's auction of five-year notes.

Friday's release of March import prices likely will reveal inflationary pressures building due to high crude oil prices.

International Flows

Amid more evidence of slower U.S. growth, the dollar has counterintuitively been rising over the past few trading sessions. Put in a broader contest, U.S. growth may be slowing but other economies are expected to do much worse in 2005. At least that was the assessment of the International Monetary Fund Wednesday. The U.S. and the U.K. actually were the only two countries whose 2005 growth prospects were revised upward by the IMF. Of course, their forecasts had not included the most recent economic indications.

IMF Managing Director Rodrigo Rato, meanwhile, warned about the global risks inherent with the huge U.S. deficits, which could lead the dollar to plunge and interest rates to rise sharply.

So far, this has not happened because central banks have continued financing the current account deficit. But there has been evidence that they're less willing to finance it. Alerts about South Korea and Japan surfaced several weeks ago, before officials from both countries quickly downplayed the noise.

"They can say what they want, the money and the numbers speak for themselves," says MG Financial Group chief currency analyst Ashraf Laidi. Japan, which owns more than $700 billion in Treasuries -- the world's largest position -- has been steadily buying less over the past four months, he notes. The dollar firming somewhat during 2005 may have provided a window of opportunity for the banks to unload some of their positions.

Tomorrow's release of the Treasury's International Capital Flows in March will provide more clues on foreign appetite for U.S. assets. Mostly, the market will want to see if capital flows are enough to finance the U.S. trade deficit. A figure below $60 billion could therefore spark a dollar selloff, Laidi says.

Another element to pay attention to in the TIC report will be the source of the money. In February, a huge surge of buying interest came from Caribbean-based hedge funds, not a great source of stability for the markets.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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