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Microsoft batters Wall St.
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December 15, 2000: 4:47 p.m. ET
Revenue warning sparks broad sell-off; Dow, Nasdaq take a tumble
By Staff Writer Catherine Tymkiw
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NEW YORK (CNNfn) - Microsoft's announcement that it would miss estimates for the first time in a decade sparked a sharp tech sell-off, sending the Nasdaq composite index falling for its fourth straight session and the Dow Jones industrial average down more than 240 points.
Both the Dow and the Nasdaq attempted to trim losses during the last hour of trading as bargain hunters and options-related buying came in, but renewed selling near the close whacked the indexes right back down.
 The Nasdaq fell 9 percent this week while the Dow Jones industrial average tumbled 2.6 over the last five days. The S&P 500 slid 4.2 percent.
"In Nasdaq, we've been in a confused bear market for a while," Christine Callies, chief U.S. investment strategist with Merrill Lynch, told CNNfn's market coverage. "The background environment, particularly in the economy, is not as bad as people think."
Investors have become increasingly concerned about how corporate profitability would be affected during an economic slowdown, and daily bottom line warnings have sparked some hefty selling, especially in the technology sectors.
"It's all Microsoft," said Art Hogan, chief market strategist with Jefferies & Co. "The broad sell-off in the techs is because Microsoft spoke about [slowing] demand."
Dow and Nasdaq component Microsoft (MSFT: Research, Estimates) tumbled $6.31 to $49.19, near a 52-week low, after it announced late Thursday that second-quarter results would fall 5-to-6 percent below its own guidance and as much as 3 cents a share below the analysts' consensus estimates.
 The Nasdaq fell 75.14 points to 2,653.37, recouping some of its 4 percent drop. The Dow tumbled 240.03 to 10,434.96, while the S&P 500 slipped 28.83 to 1,312.10.
Adding to the market's pain was the "triple witching" expiration of options. Analysts said this round of options expirations was adding to the volume and volatility. Triple witching occurs when the futures market, cash market and options all expire on the same day.
"You're going to get a lot more volatility on a day like today, but some of this activity, in combination with the Microsoft announcement, has clearly accelerated the volume on the day," said Ned Riley, chief investment strategist at State Street Global Advisors.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers 1,594 to 1,308, as more than 1.55 billion shares were traded. Losers outpaced winners on the Nasdaq 2,504 to 1,379, as more than 2.53 billion shares were traded.
In other markets, Treasury securities edged higher. The dollar fell against the euro but edged higher versus the yen.
Microsoft's pain spreads to techs
Another day, and with it another round of warnings, sent investors to the sidelines as worries about a slowdown in corporate revenue growth resurfaced.
"I think you're going to continue to see this until we get through this whole period where there are these expectations that are clearly different than what reality is going to produce next year," said Riley. "Microsoft is only another example."
The sentiment was exacerbated by Microsoft's warning, the first in 10 years for Bill Gates' company, whose computer-operating system software and Explorer Internet browser are among the most widely used in the world.
The company cited sluggish computer sales, the slowing economy and a slowdown in corporate spending for the shortfall. Those reasons have also been cited for anticipated results shortfalls announced recently by other PC leaders and chip makers.
While the warnings don't seem to be slowing down, Riley suggested that the situation could be less dire going forward as companies may start giving more detailed guidance when they post results.
"I think it's best that the companies, when they do release their fourth quarter [results], try to elaborate a little more about the prospects for next year so we don't get into a situation where the expectations are different than reality," he said.
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Microsoft's woes were more than enough to spark a broad sell-off in all the tech sectors -- with the exception of Oracle, which gained after posting strong earnings.
Compaq Computer (CPQ: Research, Estimates) slid $1.35 to $17.35, Hewlett-Packard (HWP: Research, Estimates) fell $1.88 to $31.63 and IBM (IBM: Research, Estimates) shed $4.63 to $87.81.
 Other tech leaders also fell. Intel (INTC: Research, Estimates) lost $2.94 to $32.44, Cisco Systems (CSCO: Research, Estimates) tumbled $2.78 to $48.16 and Sun Microsystems (SUNW: Research, Estimates) fell $1.25 to $30.44.
But software maker Oracle (ORCL: Research, Estimates) rose $1.38 to $28.88 after it reported better-than-expected second-quarter earnings after the bell Thursday.
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FRIDAY'S MOVERS AND SHAKERS
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Outside of technology, financial stocks took a hit for the second straight session. J.P. Morgan (JPM: Research, Estimates) fell $1.63 to $156.31, just one day after a joint warning with its merger partner Chase Manhattan (CMB: Research, Estimates) that fourth-quarter profitability would fall short of expectations.
 American Express (AXP: Research, Estimates) shed 75 cents to $54.94 and Citigroup (C: Research, Estimates) lost $2.19 to $48.56.
But Ron Hill, partner and equity strategist with Brown Brothers Harriman, remained optimistic, telling CNNfn's Before Hours, "I think next year is going to be a reasonably good year. When the Fed starts lowering rates, even though profit growth will be really poor, often some of the best gains in stocks come when earnings are doing poorly, because you're getting a lift from price-to-earnings ratios rising."
Waiting for word from the Fed
Investors are turning their attention to all the incoming economic data ahead of the Federal Reserve's policy-making meeting on Dec. 19, trying to gauge whether or not Fed Chairman Alan Greenspan will move to a neutral stance on interest rates.
In a speech to community bankers in New York on Dec. 5, Greenspan indicated that the Fed may be ready to take on that neutral stance -- signaling that the Fed no longer views inflation as a primary threat to the economy.
Barry Hyman, chief investment strategist at Weatherly Securities, told CNNfn's Market Call that Fed action may be the last hope for any kind of a rally this year. (377K WAV) (377K AIFF).
In the day's data, U.S. consumer prices rose 0.2 percent in November, according to the Labor Department, matching Wall Street forecasts and October's increase.
Excluding food and energy, the Consumer Price Index, the government's main inflation gauge, rose 0.3 percent, a shade above forecasts for a 0.2 percent rise. 
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