Fed’s Soft Landing Scenario Hits Unexpected Air Pocket—An Oil Shortage

The big story this week: Future corporate earnings could get caught between rising fuel prices, high interest rates and the falling euro. Investors have shifted gear from worries about inflation, due to rapid growth, to fear of recession induced by the unforeseen global oil shortage. For the first time in recent memory todayis weak economic data was interpreted as negative news rather than merely more hope that the Fed will quit raising interest rates. Apple took a beating with the rest of the stock market.

October crude oil futures hit a post Gulf War high of $36 per barrel, helping the oil stocks and send the Dow Jones Utilities to a new record high. Meanwhile, the euro continued south to set a new all time low exchange rate against the US dollar.

Apple sank 1 5/8 to close at 55 15/64 on big volume of 7 million shares. AAPL began the week at about 60 dollars per share and closed it on the low as the Mac OS X hoopla got pushed off the front page by Cupertinois pet obsession.

Appleis relentless war on NDA violators is becoming a distraction. This time Apple is reported to have threatened to pull its advertising from Websites that publish Mac rumors unless the sites make editorial statements denouncing such activities to Chiat/Day Media, Appleis advertising agency. Once again it looks like Appleis Keystone Cops are mishandling a simple but sensitive issue.

Apple is, of course, free to advertise with whomever it wishes. However, the company treads on thin ethical ice when it attempts to dictate editorial policy to independent media. See my editorial, Appleis Corporate Vigilantism, which analyses Appleis increasingly difficult relationship with its fans and the media.

The Nasdaq fell 78 points (-2.01%) to close at 3835 on volume of 1.76 billion shares. Suddenly, against the background of a slowing economy, triple digit PE ratios look very foolish indeed. Analysts are hurrying to advise their clients to think value, not momentum or growth.

The Dow fell 160 points (-1.45%) to close at 10927 on unusually high volume of 1.23 billion shares. Traders are saying the sell-off was unrelated to todayis triple witching expirations.

The S&P 500 dropped 15.06 points (-1.02%) to close at 1465.81.

In Apple related businesses: Akamai lost 2 13/16 to 61 1/8. Earthlink climbed 5/16 to 11 11/16. Motorola gained 1/2 to 34 15/16. IBM shed 1 7/8 to 125 dollars.

Adobe reported $0.61 per diluted share for the third quarter with net income of $78.3 million, compared to $57.2 million, or $0.44 per share a year ago. Analysts had expected the company to earn $0.53 a share. The company also announced a two-for-one stock split, payable on October 24 to shareholders of record on October 2. Adobeis third-quarter revenues were $328.9 million, a 26% rise from $260.9 million in the year-ago quarter. Looking ahead, the company forecast 25% revenue growth for the fourth quarter. Adobe soared 71/4 to 132 5/8.

Oracle also reported excellent earnings of $0.17 per share, up from $0.08 last year at this time, soundly beating expectations of $0.13 per share. But the stock got hammered down 6 5/8 to 78 5/16.

Appleis competitors: Dell fell 7/8 to 35 3/4. Gateway lost 1.37 to 59.35. Compaq gave back 7/8 to 30 1/4.

Microsoft executives continue to sell their MSFT shares even though the stock is far from its 52-week high of 120 dollars. Microsoft co-founders Bill Gates and Paul Allen plan to sell another $109.3 million of MSFT soon. A C/Net article notes, "In the past three months, Gates has sold 4.15 million shares valued at about $291.2 million, while Allen has sold 16.26 million shares valued at about $1.2 billion, according to the SEC documents." Shares of Microsoft dived 1 5/8 to 64 3/16.

In economic news: The consumer-price index fell a mere 0.1% in August, but that was enough for the record books. August 2000 marks the first time in 14 years this important gauge of inflation has posted a decline. However, the core index which excludes food and energy items climbed 0.2% for the fifth month in a row.

The Wall Street Journal commented, "The Federal Reserve, whose top policy makers next meet on Oct. 3, has raised interest rates six times over the last 15 months to keep the economy from overheating. Fridayis CPI report supports widespread views that the Fedis rate increases are over for now. Some observers think the central bank may even start to decrease rates to avoid a recession."

For full quotes on all the companies mentioned in this article, we have assembled this set of quotes at Yahoo! for your reference. For other stories regarding Appleis stock activity, visit our Apple Stock Watch Special Report.

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