Microsoft Warning Prompts Selling Across the Board
WILLOW BAY, CNN ANCHOR: Tonight on MONEYLINE, selling across the board after last night's warning from a once-invincible company, Microsoft. We'll take an in-depth look at the software king and its PC- making partners: Could they someday become relics in a world going wireless? Just days before the Fed meeting, the president-elect weighs in on the slowdown.</s>GEORGE W. BUSH, PRESIDENT-ELECT OF THE UNITED STATES: People are concerned about the economy.</s>BAY: Will Greenspan push through a surprise rate cut? Should he? And, with just nine shopping days until Christmas, we'll take a "Bottom Line" look at a century-old retailer in dire need of a turnaround, Nordstrom.</s>ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.</s>BAY: Good evening, everyone, and welcome to MONEYLINE. Stuart is off tonight. Our top story tonight, the markets knocked down in the Microsoft aftermath. The Dow today suffered its worst point loss in months, and the Nasdaq fell sharply for the fourth straight session after Microsoft yesterday issued its first profit warning in a decade. That warning was just one of dozens to emerge over the past two weeks, a big red flag that the economy is slowing dramatically. And today for the first time as President-Elect George W. Bush voiced his concerns ahead of the Fed meeting on Tuesday. Taking a look at the blue chips: The Dow fell 240 points to end at 10434, its session low. The Nasdaq tumbled as much as 135 before rebounding a bit to end down 75 at 2653. The S&P; lost nearly 29 to close at 1312. Let's go right to Terry Keenan at the New York Stock Exchange with her look at a fierce Friday sell-off -- Terry.</s>TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, so much for that Bush-inspired rally here on Wall Street. Although the market's favorite candidate will be the one in the White House next year, the market has sold-off since the vice president's concession speech Wednesday night, down 359 Down points. More interestingly, Microsoft -- the target of David Boies' legal arrows before he turned them on the George W. Bush campaign, today became the market's main nemesis. The street clearly did not react kindly to the Microsoft warning that it will miss earns and sales numbers in the current quarter. It is, as you mentioned, the first miss in 10 years. They also warned going out to the end of their fiscal year, which will wrap up at the end of June. The thinking is that if Microsoft, with $20 billion in cash, $25 billion in sales, and billions in other investments can't pull a penny or two out of its coffers, things must really be bad in the tech sector. In fact, concern is mounting that the tech slowdown will add to the general economic malaise and not help buffer the old economy. In fact, President-Elect Bush went out of his way today to reiterate concerns about a possible looming recession, concerns first voiced by his running made two weeks ago.</s>BUSH: I think Vice President-Elect Cheney was right in echoing concerns -- my concerns -- about a possible slowdown and that is one of the reasons I feel so strongly about the need to reduce the marginal rates in our tax code.</s>KEENAN: Well, no tax cuts, just profit cuts for some of the Dow stocks today. Let's look at some of the losers. The Dow's four tech components shaved 100 points off the Dow Industrials today. Microsoft clobbered, down more than 6. Intel off more than 2 1/2. IBM down better than 4. Hewlett-Packard off nearly 3. Now each of those stocks is trading tonight within a dollar of new lows for the year. Citigroup off more than 2 1/2 -- a weak financial sector. The market breadth, though, not as bad as you might think. Decliners did beat out advancers, but the margin was 15-13 and volume extremely heavy. In fact, off the charts. A record day for volume here at the New York Stock Exchange, 1.6 billion shares traded -- Willow.</s>BAY: Terry Keenan at the Big Board. Thanks, Terry. It has been a disappointing week for the Nasdaq. On Monday, we broke back above 3000 for the first time in weeks. But tonight, we stand just 56 points from our closing low for the year. John Metaxas joins us now from the Nasdaq market site in Times Square -- John.</s>JOHN METAXAS, CNN CORRESPONDENT: Yes, and actually, Willow, at the lows today the Nasdaq was one point below that level, 2596. The market came back from those lows today. It was a busy session and a brutal one, triple witching adding to the volume here -- 2 2/3 billion shares changing hands. The third busiest in history ever at the Nasdaq. Microsoft, of course, the catalyst for the selling here. That stock down today some 11 percent on the day at two-year lows, 49 3/16. Brokerages following the warning, lowering their own estimates for the stock, but Sun Microsystems also a drag on the market. Bear Stearns downgrading the stock to attractive from buy. That stock also hitting a 52-week low. Cisco Systems losing on the day as well in sympathy. But two software stocks bucked the trend. Oracle beat expectations with their earnings yesterday. That stock up 4 percent today and Larry Ellison saying, unlike the PC market, the enterprise software market appears very healthy. Adobe gained nearly 9 percent on the day after they beat expectations yesterday. As you say, Willow, we have come back from the 3000 level with four down sessions in a row. Nasdaq losing 12 percent since Monday, but the come-back off the lows today gives some encouragement to traders. Back to you.</s>BAY: All right, some encouragement. We'll take it. John Metaxas at the Nasdaq market site. Well, for weeks you've heard talk about profit peril and revenue shortfalls from companies big and from companies small, old and new. The severity and the sheer volume of the warnings has stunned even Wall Street bears. Greg Clarkin takes a look at the true confessions that have been tormenting investors.</s>GREG CLARKIN, CNN CORRESPONDENT (voice-over): They've come with head-spinning frequency, sometimes expected, sometimes out of the blue. They've shaken investor confidence and they point to a broad economic slowdown. They're profit warnings, and they've hit everyone from old economy stand-bys to new economy upstarts. In the space of the last few weeks, companies from every corner of the economy have warned Wall Street. November 29th, Gateway slashed its sales and earnings estimates. December 7th, Intel said sales would be flat quarter-over-quarter. Four days later, Honeywell said profits would be weak. December 12th, General Motors cuts 16,000 jobs and cuts earnings estimates. A day later, Whirlpool warns of weak appliance sales, and yesterday, Microsoft's first red flag in 10 years, slashing sales and profit estimates.</s>STEPHEN ROACH, MORGAN STANLEY DEAN WITTER: The earnings disappointments we're seeing right now are clearly symptomatic of a major deceleration in the U.S. economy. And the risk is that this deceleration could turn into recession and the markets are getting increasingly unnerved that this is not a one-off story on earnings, but the beginning of something that could last another six to nine months.</s>CLARKIN: Roach says several factors have contributed to shrinking corporate earnings: the Federal Reserve's six rate hikes; higher energy and raw material costs; and spiraling stock prices which have canceled the so-called wealth effect and deflated consumer confidence. The total number of earnings preannouncements, good or bad, are up 40 percent for the fourth quarter: 759 this year versus 456 last year. Analysts say much of that can be trace to new government regulations regarding disclosure. The negative preannouncements or profit warnings much higher there year, 362 versus 213, make up about the same percentage of total announcements. And analysts don't expect a slowdown in profit warnings any time soon.</s>CHUCK HILL, FIRSTCALL/THOMPSON FINANCIAL: You've got remember that last year, 43 percent of our negative preannouncements came after January 1st, so we probably still have more pain and suffering to come in those first few weeks of January.</s>CLARKIN: Now, profit growth for S&P; 500 companies for the fourth quarter is now expected to be last than 8 percent, and that's about half of what was expected at the started of the quarter. And analysts say all this has them believing there'll be plenty more profit warnings, and Willow, the help prove that point, eToys after the close of trading today become the latest casualty, announcing that they will not meet expectations.</s>BAY: Greg, we'll continue to brace ourselves. Greg Clarkin, thanks. Coming up on MONEYLINE, five sessions, nearly 10 percent off the already beaten down Nasdaq. Will this go down as the worst year ever for the index? We'll talk with Brian Finnerty up next. Stay with us.