Profit Warning Socks Stocks

Stocks took a hit across indexes Friday, after an earnings warning from Microsoft fueled growing fears about slowing consumer spending.

According to CBS MarketWatch, the Dow Jones industrial average lost 240.03 to 10,434.96, the Nasdaq fell by 75.24 to 2,653.27 and the Standard & Poor's ended down 28.78 to 1,312.15.

Microsoft, a Dow component and Nasdaq heavyweight, warned that a global slowdown, lower personal computer sales and less corporate spending would smack earnings and revenues.

That comes on top of word from several companies that sales have been slow during the crucial holiday shopping season.

President-elect George W. Bush echoed some of those worries Friday, saying, "People are concerned about the economy. I think there is concern about some of the manufacturing base."

Speaking to reporters in Austin, Texas, Bush added that high energy prices and weakening demand for automobiles also provided warning signs over the future course of the economy.

Asked about Vice President-elect Richard Cheney's comments last weekend that the U.S. economy may be on the "front edge of a recession", Bush replied: "He was right in echoing my concerns about a possible slowdown."

Microsoft joins a growing pile of such marquee names as Intel Corp., Eastman Kodak Co., General Motors Corp. and Chase Manhattan Corp. painting dismal growth pictures as the economy slows from its break-neck pace.

"The economy can't slow down without touching all the sectors — it's getting to be across the board," said Larry Rice, chief investment officer at Josephthal Lyon & Ross.

Friday's "triple witching" — the expiration of stock options, index options and futures — exaggerated the market's fluctuations.

Other computer-related companies like Cisco Systems, Sun Microsystems, IBM, Intel and EMC Corp., suffered as Microsoft offered further evidence that growth is winding down.

"There's no way to really candy-coat this," said William Epifanio, an analyst at JP Morgan.

And the selling spread to other sectors.

Clorox Co., the maker of its namesake bleach, tumbled $4-1/16 to $29-15/16 after saying quarterly earnings will fall below year-ago levels, on lower sales.

Power toolmaker Black & Decker Corp. dropped $1-1/16 to $31-3/8 after it lowered earnings expectations for the fourth quarter 2000 and for 2001, in part because of lower-than-expected sales.

Polaroid Corp. lost 3/4 at $6-7/16 after issuing a profit warnings in the face of lower instant film and camera shipments.

"We are entering a new world that's really hitting the big boys," said Barry Hyman, chief investment strategist at Weatherly Securities.

Early data lifted hopes the central bank may shift from a tight to an easier money policy when it meets on Tuesday. Consumer prices rose moderately in November, the government said.

Most economists do not expect the Fed to alter interest rates at Tuesday's policy meeting. However, the central bank is expected to emphasize the inflation risk is no longer as serious as the threat of an economic downturn.

With the once-booming economy showing signs of softening lately, such a shift could pave the way for the Fed to cut interest rates sometime in the new year to give growth a lift.