A big tech sell-off stops a rally cold

A big sell-off in technology shares this afternoon wiped out a big stock market rally.

It started when JPMorgan analysts lowered their revenue estimate for Baidu.com (BIDU, news, msgs), one of the largest Chinese Internet search engines.

Baidu, which had jumped more than 200% for 2007 after Wednesday's close, fell 10% to $308.78 in New York.

That prompted selling in such tech heavyweights as Google (GOOG, news, msgs), which fell 0.5% to $622; the stock, however, had hit an all-time high of $641.

At the close, the Dow Jones industrials were down 63.6 points to 14,015. The Nasdaq Composite Index was off 39 points to 2,772, and the Standard & Poor's 500 Index slipped eight points to 1,554.

The reversal was quite large -- about 183 points for the Dow, for example. And that was an improvement on things. About 3:15 p.m., the Dow had been down nearly 130 points. The selling came after the Dow and S&P 500 had hit intraday highs of 14,198.10 and 1,576, respectively.

Only seven of the 30 Dow stocks finished with gains, along with just 140 S&P 500 stocks and 15 of the 100 stocks in the Nasdaq-100 Index ($NDX.X), which tracks large-capitalization Nasdaq stocks. The index closed down 36 points, or 1.7%, to 2,141.

Apple (AAPL, news, msgs), down 2.7% to $162.23, Research in Motion (RIMM, news, msgs), down 5% to $111, Qualcomm (QCOM, news, msgs), down 2% to $41.47, and Amazon.com (AMZN, news, msgs), down 5.6% to $89.34, accounted for about a third of the index's loss.

Why did the market fall?

The consensus explanation on why the market tumbled started with Baidu and mere profit-taking.

"You've had such a straight up run here in the last two weeks in the tech area," Clarence Woods Jr., a trader with MTB Investment Advisors in Baltimore, told Bloomberg News. "Everyone was waiting for someone to blink, and, when they did, people decided to sell and take their profits."

Indeed, Google had been up nearly 8% for the week when the selling started and was sporting a market capitalization of $198 billion -- larger than that of oil giant Chevron (CVX, news, msgs).

• Video: Why did the market tank?

But some traders focused on a comment from Axel Weber, a member of the European Central Bank's governing council, that the ECB might have to raise rates again to counter an expected pickup in inflation.

With that thought came some worry that the Federal Reserve, widely expected to cut interest rates at least once more this year, might leave rates alone. The Fed cut its key federal funds rate to 4.75% on Sept. 18. The fed funds rate affects everything from commercial bank loans to auto and credit card rates.

And crude oil jumped 2% to $83.08. Crude is up 36% this year.

Lastly, the dollar fell again against the euro, Canadian dollar and the Japanese yen. The U.S. Dollar Index, which measures changes in the dollar against a basket of currencies, fell to 78 and is down 6.2% on the year. That helped push crude oil higher.

And, we must note, the price of gold rose 1.4% to $756.70 an ounce in New York. Gold is up 18.6% this year. The Streettracks Gold (GLD, news, msgs) exchange-traded fund was up 0.8% to $73.91.

Trading volume was light when the selling started, but, once it did, the volume shot up quickly. Nasdaq volume hit 2.5 billion shares, roughly 25% greater than average.

GM, Wal-Mart survive the sell-off

The market had opened strongly thanks to Wal-Mart Stores (WMT, news, msgs), which raised guidance for third-quarter earnings, and General Motors (GM, news, msgs), where labor peace now reigns.

GM did end the day as the Dow leader with a 4.9% gain to $39.99. The United Auto Workers approved the union's new contract with GM late Wednesday.

The contract approval came as the UAW and Chrysler agreed on a new contract, abruptly halting a strike that began Wednesday morning. Because of those two deals, shares of Ford Motor (F, news, msgs) jumped 6% to $8.74 on the prospect that its negotiations with the UAW will be successful. Ford was the S&P 500 leader.

Wal-Mart followed GM among Dow stocks with a 2.9% gain to $46.90 after the company raised its third-quarter earnings guidance to 66 cents to 69 cents a share, up from an earlier outlook of 62 cents to 65 cents per share.

The new guidance came despite Wal-Mart's report that September sales growth was at the low end of expectations. The mega-retailer has already started to mark down goods for the holiday shopping season.

• Talk back: Is the Wal-Mart era coming to an end?

Retailers report weak September sales

Wal-Mart's earnings forecast notwithstanding, the retail industry had a crummy September.

The ostensible reason was that the weather was so warm across much of the country that no one wanted to buy fall clothes. A softening economy, however, also played a role.

Target (TGT, news, msgs) reported a 1.2% sales gain, lower than its forecast of 1.5% to 2.5%. The stock slipped 1.8% to $64.62.

Shares of J.C. Penney (JCP, news, msgs) were down nearly 7% to $63.27; its September sales fell a surprising 4.6%. The stock was the second-worst performer among S&P 500 stocks.

Even high-end retailers disappointed. The 3.2% sales gain at Nordstrom (JWN, news, msgs) was smaller than expected, and the department-store chain cut its third-quarter earnings forecast by 11 cents to 50 cents to 53 cents a share. The stock fell 7.5% to $44.97 -- the worst S&P 500 performer.

The Standard & Poor's Retail Index ($RLX.X) was down 1.3% today to just under 484. The index has had a rocky ride in 2007. It's down 2.3% this week, up 2.7% for the month and down 3.1% on the year.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$83.08	$81.30	$1.78	1.74%	36.09%
Heating oil (per gallon)	$2.2473	$2.2172	$0.0301	0.42%	40.64%
Natural gas (per million BTU)	$6.8760	$7.0100	-$0.1340	0.09%	9.16%
Unleaded gasoline (per gallon)	$2.0666	$2.0336	$0.0330	-0.08%	28.99%

The Material Girl strikes a rich deal

Madonna is about to turn the corporate music world upside down.

The Wall Street Journal says the chanteuse is close to leaving the Warner Bros. Music, a unit of Warner Music (WMG, news, msgs), for Live Nation (LYV, news, msgs). The reason: $120 million.

The 10-year deal would give the Material Girl, now 49, "a rich mix of cash and stock," The Journal reported. In exchange, Live Nation gets the rights to sell three studio albums, promote concert tours, sell merchandise and license her name.

What makes this a big deal is how it changes how business is done in popular music, The Journal said. It used to be that "acts like Madonna would release their recordings through a major record label and then make separate deals for touring and merchandising with other companies."

Now all sorts of players, from tour companies to music producers, are scrambling to "make broad deals that give them a larger piece of the pie by participating in revenue streams such as endorsement deals between artists and advertisers, as well as the sales of concert tickets and merchandise," the paper noted.

Live Nation will pay Madonna $17 million upfront and $50 million to $60 million to do three albums -- plus another $50 million to promote her concerts, The Journal said. The two sides will split revenue from licensing deals, like using Madonna's name on fragrances.

This could be a big blow for Warner Music, which went public in May 2005 and has seen its shares fall nearly two-thirds in the last year or so. Shares of Live Nation have more than doubled since it went public in December 2005. It had been spun off by Clear Channel Communications (CCU, news, msgs).

In the end, investors didn't seem happy with either Warner Music or Live Nation.
Warner Music shares were down 1.4% to $11.13; Live Nation fell 3.7% to $22.49.

Union's deal with Chrysler mirrors GM contract

When all is said and done, there may well be peace in the domestic auto industry.

Not only did the United Auto Workers ratify their contract with General Motors. The union and Chrysler agreed to a tentative contract Wednesday afternoon, and the union called off a strike against the ailing automaker after only six hours.

The Associated Press reported that the deal includes some guarantees that vehicles will be produced at U.S. factories, as well as a company-funded union-run trust that will pay much of Chrysler's $18 billion in long-term retiree health-care costs and a lower wage scale for some newly hired workers.

The guarantees, which translate into job security for union workers, are in many cases only for the life of current products. The UAW's deal with GM made guarantees at many factories that include the next generation of cars, trucks and parts

Subprime problem bigger than thought

Think the subprime-mortgage mess is limited to just a few states -- say, California, Florida, Arizona, Colorado and Nevada?

You would be wrong, The Wall Street Journal reported. A Journal analysis of more than 130 million mortgages made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

Higher-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages.

High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

The subprime aftermath is already hurting a far broader array of Americans than many realize, cutting across income, race and geography.

The data also show that some of the worst excesses of the subprime binge continued well into 2006. As much as $600 billion of adjustable-rate subprime loans, for example, are due to adjust to higher rates by the end of 2008, the paper said. Result: The pain from mortgage problems could last through 2008 and beyond, especially if housing prices remain sluggish.

They lost $390 million in a day

Investment banking giant Morgan Stanley (MS, news, msgs) said its quantitative-strategy traders lost $390 million during a single day in August as their computer models failed to account for "widespread" investor selling, Bloomberg News reported.

Morgan Stanley traders lost money on 13 days during the quarter ended Aug. 31, the company said Wednesday in a Securities and Exchange Commission filing.

Morgan Stanley said last month that the quantitative-strategies group lost $480 million during the quarter after being caught off-guard when other investors sold securities to reduce borrowings. Separate areas of the equity sales and trading unit made up for the losses, enabling it to report $1.8 billion of revenue for the third quarter, up 16% from a year earlier.

The firm's quantitative group uses mathematical models to pick investments. Funds run by the group began posting steep losses in late July and early August as surging defaults on subprime mortgages triggered a crisis of confidence in credit markets. Stock-market declines followed. The funds were forced to sell more-liquid investments in stocks to raise cash and reduce debt.

The selling confounded the funds' computer models. Stocks that they anticipated would decline in price rose, and shares that they expected to rise instead fell.

Morgan Stanley closed down 0.7% to $67.06.

A question of Countrywide stock sales

North Carolina Treasurer Richard Moore has asked the SEC to investigate stock sales made by Angelo Mozilo, CEO of Countrywide Financial (CFC, news, msgs), in the months before its shares plummeted amid the deepening mortgage crisis.

In an Oct. 8 letter to SEC Chairman Christopher Cox, The New York Times reported, Moore questioned changes Mozilo made to his arranged stock-selling program -- adjustments that allowed him to significantly increase his sales of Countrywide shares.

After starting a plan in October 2006, Mozilo twice raised the number of shares that could be sold: once in December 2006, when Countrywide stock was $40.50, and again in February, when it hit a high of $45.03. He has had gains of $132 million since starting the October 2006 plan and expects to sell his remaining shares by the end of the week, a move that will generate millions more.

Since that February peak, Countrywide shares have fallen 58%. The stock closed down 2.8% to $18.28 today.

Mozilo has sold shares through arranged schedules since 2004. But the pace of his sales, which have generated $300 million in gains for him since 2005, began to increase in October 2006 when he put a new program in place.

Short hits from the markets -- 4 p.m. ET

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	4.005%	3.935%	0.070	8.24%	-18.01%
5-year Treasury note yield	4.372%	4.368%	0.004	3.38%	-7.00%
10-year Treasury note yield	4.659%	4.647%	0.012	1.75%	-1.08%
30-year Treasury bond yield	4.883%	4.863%	0.020	1.03%	1.35%
Currencies
U.S. Dollar Index	78.00	78.30	-0.30	0.48%	-6.15%
British pound in dollars	$2.0321	$2.0429	-0.0108	-0.75%	3.70%
Dollar in British pounds	£0.4921	£0.4895	0.0026	0.76%	-3.57%
Euro in dollars	1.4203	1.4148	0.0054	-0.45%	7.60%
Dollar in euros	€ 0.7041	€ 0.7068	-0.0027	0.46%	-7.06%
Dollar in yen	¥117.22	¥117.17	0.05	2.15%	-1.51%
Commodities
Gold	$756.70	$746.00	$10.70	0.89%	18.61%
Copper	$3.6690	$3.6940	-$0.025	0.80%	27.80%
Silver	$13.9850	$13.6680	$0.32	0.47%	5.67%
Crude oil (NYMEX) (per barrel)	$83.08	$81.30	$1.78	1.74%	36.09%

The Magellan Fund is back

The Fidelity Magellan Fund (FMAGX) is generating its highest returns since 1993 by buying more technology stocks and shares of companies outside the U.S. Manager Harry Lange, who replaced Robert Stansky in October 2005, has 29% of Magellan's $45 billion in non-U.S. stocks, Bloomberg News said. This includes stocks like China Life Insurance, which has risen more than sevenfold since he bought the shares about 18 months ago.

He has an additional 29% in technology-related companies, led by Nokia (NOK, news, msgs), the Finnish cell phone maker.

Magellan has advanced 21% this year, outperforming three-fourths of competing mutual funds that invest in companies with above-average earnings growth, data from Morningstar show. Magellan's return doubled the Standard & Poor's 500 Index. Magellan had trailed the benchmark for six of the past 10 years, including 2006 -- when it rose less than half as much as the index's 15.8% gain.

By Charley Blaine