Microsoft, IBM outlooks
put damper on Wall St.

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By Lisa Singhania
Associated Press

NEW YORK >> Cautious outlooks from Microsoft and IBM sent technology stocks tumbling today on Wall Street as investors worried that an economic recovery might be further delayed.

Analysts said the sharp drop was to be expected given all the buying investors indulged in late last year when they expected business to quickly turn around in 2002.

The Dow Jones industrial average closed down 78.19, or 0.8 percent, at 9,771.85. The Dow's weakest components were IBM and Microsoft.

The tech sector took the brunt of the selling as the Nasdaq composite index fell 55.48, or 2.8 percent, to 1,930.34. The Standard & Poor's 500 index was also weak, stumbling 11.30, or 1.0 percent, to 1,127.58.

Decliners led advancers 3 to 2 on the New York Stock Exchange, with 1,873 down, 1,221 up and 230 unchanged. Volume was 1.32 billion shares. The NYSE composite index lost 3.07 to 576.19, the American Stock Exchange composite index fell 4.58 to 830.64 and the Russell 2000 index lost 8.02 to 474.37.

The Treasury's 2-year note fell 2/32 to 10019/32; its yield rose 4 basis points to 2.93 percent. The 10-year note rose 7/32 to 10026/32; its yield fell 3 basis points to 4.89 percent. The 30-year bond rose 20/32 to 1001/4; its yield fell 4 basis points to 5.36 percent.

The downturn reflected the market's disappointment with statements from IBM and Microsoft late yesterday in which both companies said they don't know if a recovery has started. Although the high-tech bellwethers beat earnings expectations, that wasn't enough for Wall Street, which had been buying on the assumption the companies would confirm a turnaround in progress.

IBM fell $5.65 to $114.25, while Microsoft tumbled $3.76 to $66.10. The selling spread to other technology issues as well, including Intel, which had issued a similarly cloudy forecast earlier this week. The chip maker, also a Dow industrial, fell $1.05 to $33.48.

"I don't think people were expecting lots of positive comments about an economic recovery, but they were hoping for some glimmer of hope, and so far management has not provided that," said John Forelli, portfolio manager for John Hancock Core Value Fund. "So people are taking profits instead of buying stocks."

After two consecutive years of decline on Wall Street, investors aren't willing to take as many chances. Such caution has led them to take profits from the market's big fourth-quarter advance, when the Dow rose more than 20 percent from its Sept. 21 low, and the Nasdaq gained nearly 40 percent.

With companies like Microsoft, IBM and Intel unable to predict a recovery, investors are questioning whether the market's gains -- at a might have been too rapid.

"People are gun shy. They know what happened in 2000 and 2001 and are much quicker to take profits," said Richard A. Dickson, a technical analyst for Hilliard Lyons in Louisville, Ky.

A positive report from Sun Microsystems failed to trigger buying. Sun fell 25 cents to $12.12 despite posting a smaller-than-expected loss for its fiscal second quarter and raising its revenue expectations for the third quarter to $3.2 billion from $3.1 billion.

In addition, Dell Computer said before the market opened that fiscal fourth-quarter sales and earnings will exceed its forecasts as an aggressive advertising campaign helps the company take consumer business from rivals. Profit will be 17 cents a share on sales of about $8 billion in the period ending Feb. 1, the company said. Dell in November forecast earnings of 16 cents on sales of $7.6 billion. Its stock fell 85 cents to $28.10 on the Nasdaq.

Dell, which gets the bulk of sales from corporations, has lured consumers using TV commercials featuring a teenage pitchman named Steven, and Chief Executive Michael Dell has appeared on Comcast Corp.'s QVC home-shopping channel.

The company sells its PCs exclusively using a direct model, letting consumers and businesses order over the telephone or Internet.

Shipments to consumers will increase 50 percent from the third quarter and revenue from the home PC business will rise 40 percent, the Austin, Texas-based company said.

Blue chips experienced widespread weakness, which analysts attributed to the Enron bankruptcy, induced by questionable accounting procedures, along with fears that struggling retailer Kmart would also file bankruptcy.

"It kind of casts a cloud on the whole market," Dickson said.

Among blue chips, J.P. Morgan Chase dropped 91 cents to $35.91, Merck fell 60 cents to $58 and Wal-Mart declined 41 cents to $56.33.

Kmart, trading near a 40-year low, rose 18 cents to $1.74.

Enron has been delisted from the New York Stock Exchange, and is selling for 511/2 cents on the over-the-counter market.

Overseas, Japan's Nikkei stock average gained 1.6 percent.

In Europe, Germany's DAX index and Britain's FT-SE 100 each slipped 0.2 percent, and France's CAC-40 fell 0.6 percent.