The chill is in the air, and it ain't just due to the season!

Growth! A word capable of sending shear terror through the inner core of the most hardened, seasoned, cutthroat bond trader in the world. Those ultimately successful in the bond market over the long haul are known for maintaining nerves of steel and poker faces. Mention growth in the economy and they become "deer in the headlights". Today, hunting season started and you can already hear Allen and the boys loading their weapons in anticipation of a February hunting party. The word out of Washington today surrounded the rate of growth in the economy during the 3-quarter. The Commerce Department released the Gross Domestic Product (GDP) number (the total output of goods and services) this morning and the news was not good. It indicated growth at the rate of 5.7%, higher than the expected 5.5%, indicative of an accelerating, expanding economy. While that may sound good to the common people (ourselves included), it's not what the Fed or bond traders want to see. Especially on the heels of 3 rate hikes intended to slow the very growth they are afraid of. To be honest, the rate of growth is somewhat startling and the fear of pending inflation is not without some merit. Despite his many comments alluding to the probable need to devise new models to deal with a new and changing economy, Al (and most of the rest of the Fed Governors) still adheres to the old macro model proscribing to sustainable growth of no more than 3%. The current level of growth has to be jeopardizing the remains of Al's comb-over. It also continues to nag the market and traders. Even the most hardened bull is starting to look for a chair to land in at this point, hoping for the music to play through the New Year and a little beyond, listening for the first warning that the music has stopped. The problem for traders now is the fact that the Nasdaq party itself has grown loader than the music. Oh well, Tis the season for overindulgence!

Speaking of the Nasdaq party, it tacked on another record today, the 57th this year. The index (COMPX) was led by high techs once again, with Commerce One, Yahoo! and Oracle garnering most of the attention. The index finished up +26.15 at 3937.30. Breadth was again a problem with advancers loosing out to decliners 19/23. Volume was pretty good for a holiday week, coming in at just under 1.5 billion. As for the winners; CMRC +70, YHOO +13.75, ORCL +7.38, BRCM +24.13 and MSFT +1.69. After the recent run, the semis and chip equipment makers were due for some profit taking which begun today. They weighed on the market along with telecom equipment and networking companies. Notables to the downside included; INTC -0.38, COMS -4.69, QCOM -11.44, WCOM -3.56, CSCO -1.50, SUNW -0.31 and AMAT -2.69.

(intraday chart of the Nasdaq)

As for big board trading, the Dow traded down from the open almost immediately, but climbed steadily throughout the day to a high of 11,260.18, before finishing on a weak note at 11,203.60, +3.06 for the day. Volume on the big board was rather anemic compared to recent days, coming in around 850 million. Not surprisingly, the advance/decline numbers remained negative at 14/17. Up to down volume came in almost flat, once again signaling declining, narrowing leadership. The new high/new low numbers continue to decline as well, further proof of the damage continuing to occur beneath the surface. Leaders included; EK +4.69, PG +4.50 and MRK +1.19. Notables heading south were; LU -2.88, AOL -1.94, MU -0.25 (in front of earnings) and IBM -1.75.

(intraday chart of the Dow)

As for the other indices, the S&P 500 managed to finish up +2.56 at 1435.99, a new record closing high for the index. The SOX finished up slightly +1.32 at 700.20 and the Russell 2000 kept pace, finishing up +2.15 at 477.94.

The bond managed to close down only slightly despite this morning's GDP news. It finished the day down -1/32 with a yield of 6.46%. A larger selloff was avoided primarily due to the fact that traders were nowhere to be found, with many getting a head start on the holiday break. The bond market is set to trade a half-day tomorrow, leaving the market with the expectation of no movement on the bond front until after the break.

The story getting the most airtime today concerned 3COM (COMS) who came out after the market on Tuesday with their second quarter numbers. Despite beating expectations, investors and analysts keyed in on the fact that the Company expects third quarter numbers to come in comparably to yr-ago numbers, indicating a slow down in growth. The Company attributed the slow down to seasonal downturn and Y2K issues. Several analyst reduced their forecasts for the coming quarter, while SG Cowen went so far as to downgrade the stock from a Buy to a Neutral rating. The stock finished down -4.69 at $48.44.

QCOM made news after the market, announcing that they would sell their CDMA wireless phone unit to Kyocera Corp(KYO), a leading Japanese manufacturer of wireless phones and equipment. QCOM traded down on the day -11.44, while KYO traded up significantly, adding +15.19 to close at $166.38.

In other news, AOL came out to announce that they would seek to purchase MapQuest.com (MQST) in an all-stock deal valued at $1.1 billion. Investors of MQST voiced their displeasure, shaving over 7 points off the stock price. AOL closed down for the day as well, -2.25 at $82.75.

One other deal of note came out of Oracle and Boeing, with the two giants announcing that they were in talks to create an electronic marketplace for aircraft parts. This should help with overhead and manufacturing costs for aircraft manufacturers in the future. Shares of both Companies experienced gains for the day.

On the earnings front, Micron Technologies reported after the bell, beating expectations handily $1.19 vs $0.81. Despite the positive news, the stock was off for the day and traded down in after-hours trading. There are no earnings announcements scheduled for tomorrow.

As for expectations for tomorrows trading, don't expect much. Traders will probably be scarce and volume will probably reflect this, especially as the morning wares on. Despite this, you might see the techs continue to rally, offering last minute shoppers one last opportunity to pay for those Christmas goodies. On a cautionary note, lack of volume often translates to hyper- volatility. Translation-expect some wild swings, especially in the techs and the Internets. There might be buyers looking to position for the first part of next week, so another Nasdaq record (maybe even a shot at 4000) is not out of the question. The Dow and big board issues will probably be quiet, offering a safer haven for conservative traders. All in all, it's a safe bet to say that the markets will not melt down tomorrow, so the party will live on and the music will continue to play.

Merry Christmas

Louis Horkan
-Chief Editor