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Dow Drops Below 10,000

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: And of course our big story that we are watching this morning: the stock market. As it goes down, the Dow now down 427 points.

We want to join the coverage of our sister network CNNfn.

CHARLES MOLINEAUX, CNN CORRESPONDENT: ... now that sound like it has go to be a mistake, but right now I will read them off for you. We have got 2531 stocks now trading down, 411 reported trading up. Keeping in mind, it is early. So we don't have all of the stocks now trading and that is not uncommon to see really lopsided trading breadth early in the day, although the market has now been open for 20 minutes so that is not that surprising.

We have got just about everything is down, with exception of Intel, interestingly enough, which is gaining a little strength. But we have got Cisco, Microsoft, Oracle and Sun Microsystems all showing some pretty strong losses. We are off by 161 points right now at 3055. That is actually an improvement over what we had hit a little earlier. We were down by 187 points at 3026. But telecoms are off by 7 percent; computers down by 4 1/2; chip stocks are down yet again. Look at this! 32 points on the Philadelphia Semiconductor Index. So we continue to see losses very strong in those stocks as well; industrials are off by 5 1/2.

So we have got the strength of this sell-off is pretty outstanding on volume of 260 million shares traded only 20 minutes into the trading day. That is pretty busy.

RHONDA SCHAFFLER, CNN ANCHOR: All right, Charles. Well, we will check back with you.

As you said, a little comeback for the lows for the Nasdaq, same for the Dow.

What we want to do is head over to our markets desk, Where Allan Chernoff is going to help sort through this very rough morning -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Rhonda, it is really two stocks that are behind this massive decline we are seeing right now on the Dow Jones industrials. We are talking about the J.P. Morgan and IBM. You combine the impact that those two stocks have and it's a minus 248 points on the Dow Jones industrial. So that is really what is going on here.

J.P. Morgan off a little more than 19 points, and IBM down 22 1/2. So IBM the worst performer.

As we reported last night, right after the closing bell, IBM came out with earnings that were not all that bad. But the revenue growth was very slow, up only 3 percent, and that was a huge disappointment. IBM also made it very clear in the conference call that we were listening on that the problems it has been confronting are not going away anytime soon, saying it's still suffering from supply shortages and, also, customers are not stepping in to buy its server products because it has a new server coming out in mid-December.

So the Street knows that the fourth quarter for IBM is likely to be a bit of a disappointment as well, simply because those server sales are not going to start kicking in until the middle of December. Basically, right near the end of the quarter.

Another factor here of course is the disappointment this morning from Chase Manhattan. We told you about the earnings situation there. And, as you know, Chase is planning to buy J.P. Morgan, and J.P. Morgan is a component of the Dow 30.

And so, Rhonda, that is really what is driving this huge decline in the Dow industrials right now.

SCHAFFLER: All right, it is huge, although coming back a little bit, as you can see. Market breadth, though, is not coming back on both the Big Board and Nasdaq. We have got decliners over advance or by about a 6-1 margin.

This is also, in essence, a worldwide sell-off because we are seeing steep losses right now in the European markets.

Joining us now from her offices in London with more on what is behind the action today in Europe is Plum Shifton (ph), co-head of European equity strategy at Merrill Lynch Plum.

Thanks for joining us.

PLUM SHIFTON, MERRILL LYNCH: Good morning.

SCHAFFLER: It's a rough morning here on Wall Street. You are having a rough go of it too in Europe. What do you think started the sell-off in your markets, which preceded ours, and will the situation in Europe get worse now that Wall Street has had a rocky start?

SHIFTON: Yeah, well, I mean, we already a bad morning. With the markets down about 3 percent across the board, down close to 5 to 6 percent in some of the Scandinavian markets, and it really down on worries about Intel, worries about IBM coming through. The actual results we are getting from some of the European tech stocks are OK, We had one of Europe's largest semiconductor stocks, STMicroelectronics, report this morning above expectations, good outlook, and that is making no difference at all. We are taking, we are really taking the lead from what is going on in your markets over there.

SCHAFFLER: There is of course a lot of talk about European demand and in fact an official from Intel was quoted with its particularly earnings report: "Demand in Europe has stopped dead in its tracks." Are the problems facing Intel part of a bigger story that will be played out through the next couple of weeks here on Wall Street when it comes to European demand?

SHIFTON: Well, we are getting some very mixed reports. Because not everyone is saying that it is a European problem. To some extent, there is an issue with the currency. This week, the currency that Europeans are facing is painful for the U.S., it's beneficial to some of the European countries, and I think that is perhaps masking some of the difficulties that the U.S. is facing.

UNIDENTIFIED MALE: Plum, the weakness in the euro, are European central bankers reassessing whether it was wise to have the euro as the major currency or to establish the Deutschemark as the major currency in Europe?

SHIFTON: Well, there is no reassessment, in terms of the timetable of the currency, the single currency is here to stay. But what has been damaging has obviously been the credibility of the European Central Bank and the dissenting voices that we are hearing coming out from the central bankers, and there is very little confidence in them at the moment.

SCHAFFLER: All right, Plum Shifton, thanks so much.

One other question before we let you go, though. Because you brought up a point of some reports coming in pretty well. My question is the sentiment issue there. Is it as dismal in Europe would you say as it is on Wall Street, just investor sentiment and psychology, which plays a role in days like this.

SHIFTON: I don't think that sentiment is really rock bottom yet. We would actually prefer to see it at worst levels before we could get real confident in the market rally. And you have got cash positions from institutions, for example, still at quite low levels, but nothing like the highs that we saw back in autumn '98. So we would actually prefer to see sentiment a bit more depressed before we got more confident.

KAGAN: Once again, using all of our resources here on CNN. And that was our sister network CNNfn as we watch the stock market not doing well at all this morning.

BILL HEMMER, CNN ANCHOR: We had seen the Dow below 10000 back in March, but not since then anyway. And clearly right now, if we put it up on the Big Board for you here, down 320, which is a bit of a comeback.

KAGAN: It is all relative.

HEMMER: That is very true. It was down well over 420 points just a short time ago, but now ticking away at 318 to 9758. And there are concerns not only here in the U.S., but certainly overseas as well, as you heard some of the analysts talking there at CNN Financial News as well.

KAGAN: And we are watching the Nasdaq as well, it is down 138 points right now.

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