Moneyline News Hour

Dow Climbs 338.62 to 10,898.72; Nasdaq Rockets 274.05 to 2,889.80; Apple Issues Warning About First-Quarter Earnings

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

WILLOW BAY, CNN ANCHOR: Tonight on MONEYLINE, a buying frenzy takes Wall Street by storm. The Nasdaq rockets more than 10 percent, by far its best day ever. And the Dow vaults more than 300 points.

What was behind the roaring rally? In a word: Greenspan.

ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.

BAY: Good evening, everyone, and welcome to MONEYLINE. Stuart is off tonight.

An extraordinary and much needed rally today on Wall Street. The Nasdaq today posted its biggest one-day gain ever, and all it took was a few well-crafted comments from the world's most powerful banker, Alan Greenspan. Speaking in New York, the Fed chairman was unusually blunt. He believes the economy is softening and that we must be alert to the risk of a sharp slowdown. That means the Fed is likely to soften its stance on interest rates and may even push through a rate cut early next year. That was exactly what investors wanted to hear.

The Dow opened higher on optimism that the election deadlock would end soon. Well, it kept going after the mid-morning speech, ending up 338 points to 10,898. Volume was huge, more than 1.4 billion shares changing hands. More drama on the Nasdaq, which closed up a colossal 274 points, or more than 10 percent, its best day ever. It was also one of the Nasdaq's biggest volume days ever, over 2.4 billion shares traded. The S&P surged 51 to 1,376, a gain of nearly 4 percent.

We have extensive coverage tonight of Greenspan's speech and the dramatic reaction in the markets, beginning with Peter Viles -- Peter.

PETER VILES, CNN CORRESPONDENT: Willow, this was exactly the speech that Wall Street wanted to hear, a clear signal that the Fed is concerned about the economic slowdown and may be ready to cut interest rates to help the economy.

(BEGIN VIDEOTAPE)

VILES (voice-over): When he wants to, Alan Greenspan can be clear as a bell, and in a speech to bankers at a New York hotel, he left little doubt: the economy is losing steam, banks are getting stingy with credit, the stock market is struggling, and if things get worse, the Fed will do something about it.

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: In an economy that already has lost some momentum, one must remain alert to the possibility that greater caution and weakening asset values in financial markets could signal or precipitate an excessive softening in household and business spending.

VILES: The Wall Street translation was nearly unanimous, that the Fed will abandon its bias toward tighter interest rates later this month and will probably cut rates in January or March.

BRUCE STEINBERG, MERRILL LYNCH: What was important here was the theme that the economy was slowing without any reference to concern about inflation. So what the market took away from that was that the Fed cares that the economy is slowing down and eventually is going to do something about it.

VILES: Greenspan also gave the bankers some pep talk, urging them not to get overly cautious with credit.

JIM GLASSMAN, CHASE MANHATTAN: He thinks it's -- there's a bit of a psychological panic going on and that people may have gone a little bit too far.

VILES: Greenspan is facing criticism though from those who believe he went too far fighting imaginary inflation threats and may not be able to undo the damage those six interest rate hikes are now causing.

BRIAN WESBURY, GRIFFIN, KUBIK, STEPHENS & THOMPSON: You have to remember that, that May rate hike of 50 basis points is just hitting the economy right now, and even if the Fed were to begin cutting rates right away it would take at least six to nine months for that rate cut to impact the economy. So I think this first half of 2001 is going to come very, very close to a recession.

(END VIDEOTAPE)

VILES: Now, this is Greenspan's third war on inflation and so far he is one for two on avoiding recessions. In 1990, the economy did slip into a recession on his watch; but in 1995, he did successfully engineer a soft landing -- Willow.

BAY: Thanks, Pete -- Peter Viles reporting.

Well, if today's rally is any indication, investors are betting that Greenspan will again engineer a soft landing, and for at least a day, investors were bursting with confidence. The rally in the Nasdaq, as we pointed out, was its best ever, and by a wide margin. The Nasdaq posted both a record point gain and a record percentage gain on the day. The second biggest one-day increase was in May of this year, when the Nasdaq finished up 7.9 percent.

John Metaxas joins us from the Nasdaq market site in Times Square with more on this record-breaking trading session -- John. JOHN METAXAS, CNN CORRESPONDENT: Willow, you can add one other factor to the legal case in Florida yesterday and to the Greenspan remarks today, that's that this market was deeply oversold. The Nasdaq last week down some 50 percent from its all-time highs. Incredible performance today across every sector of the Nasdaq, led by the Internet stocks, which posted nearly a 16 percent gain on the day. Among the other sectors, computers up 13 percent. The networking sector, despite the 3Com warning, up about 10 percent. The chips were up 10 percent. The semiconductor index above that crucial 600 level. And telecoms gained, Nokia's upward guidance helping there.

Individual stock gains were staggering, starting with the market bellwether: Cisco System up nearly 14 percent. Sun is going to split its stock today, it is up to 16 percent on the day. B2B e-commerce stocks were strong, Ariba up nearly 29 percent. PMC-Sierra one of the leading chips. And Network Appliance up on the day, even though its competitor EMC unveiled a new product. Merrill Lynch came out with a note saying that it wouldn't have too much impact on Network Appliance's business.

Nasdaq since Labor Day has had twice as many down days since -- than it has had up days. And the question is, is this rally sustainable? One factor to consider as we look at a chart of the Nasdaq over the last year, is that throughout most of the summer that 3,000 level, that line you see in red on your screen, has proved to be support. Now that we've broken through it and are approaching it on the upside, technicians are saying it will be resistant, you can expect to see some selling in this market as we approach that 3,000 level -- Willow.

BAY: John Metaxas, thank you. Quite a day there.

While the Nasdaq had a tremendous trading session, it is still a whopping 586 points below its close on Election Day, November 7. But it's a different picture for the Dow industrials, the blue-chip index has managed to recover nearly all of its losses since Election Day.

For more on the markets, we head to the New York Stock Exchange and Terry Keenan -- Terry.

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, Superman rang the closing bell here at the New York Stock Exchange this afternoon, but there was little doubt that Alan Greenspan was the real action hero of the day, coming to the rescue with those well-timed comments indicating that he is once again paying attention to the level of stock prices, only this time targeting just how far they've fallen.

The dovish comments from Greenspan turned out to be the green light for investors, who are looking for a reason to become bullish on stocks again -- and buy they did, sending the Dow to its third biggest point gain ever, this on top of yesterday's triple-digit advance. Rate-sensitive financial stocks, not surprisingly, getting the most mileage out of the rate cut talk.

Take a look at some of the Dow movers. We start with J.P. Morgan, it was the biggest gainer in the Dow today, up more than 13 points. American Express and Citigroup each up $2 and then some. The Philadelphia Bank Stock index, in fact, soared more than 5 percent today.

Boeing closing in on a new high, industrial companies continuing to build on yesterday's strong rally. The only selling we saw was in the more defensive consumer and drug stocks, that's something you might expect. Procter & Gamble among the losers there.

As for the market breadth, very positive: advancers trouncing decliners by about a 5-2 margin. And there was volume to back up the buying today: 1.4 billion shares traded here.

All in all, a great day for the bulls and one that everyone here hopes will have some momentum. Interestingly, the benchmark 10-year Treasury bond tonight is at its lowest yield since May of 1999, and that was right before the Fed began raising interest rates and this market started to get some indigestion -- Willow.

BAY: Terry, you noted lots of hope there for momentum, but what were folks there saying about the significance of today's rally, and was it a perceptible change in sentiment?

KEENAN: It was long overdue, but you know, there is a lot of caution here as the market, the Dow in particular, pushes up against 11,000, that has offered huge resistance for the last year and a half. And there were also a lot of people who were shorting this market and playing the down side, and lot of talk that they were running for cover, buying stocks to cover those shorts.

BAY: Terry Keenan at the New York Stock Exchange -- thanks, Terry.

While investors celebrated the prospect of lower interest rates today, another problem for the market surfaced again after the bell, Apple Computer warning that it expects to report a loss in the first quarter due to a substantial revenue shortfall. Apple's earnings warning is the second from a prominent box maker -- just last week Gateway also warned that slow holiday sales would hit the company's bottom line. Apple shares sank in after-hours trading, down more than 2, or 12 1/2 percent, to 14.78.

Bruce Francis joins us now with more on another earnings warning from Apple -- Bruce.

BRUCE FRANCIS, CNN CORRESPONDENT: Willow, there's certainly no celebrating here. A stunning $600 million revenue shortfall will cause Apple to report a loss for its current quarter. That will be the first loss in the three years that Steve Jobs has been at the helm. Jobs says that Apple will return to profitability in the March quarter, but at revenue levels so far that the year could end up being more than 20 percent below the current rate.

Here's what happened: With sales slowing, inventories have built up to almost an entire quarter's worth of computers. So Apple will stop shipping new computers to stores and hold fire sales on the rest. Product goofs: The clock speed or processor speed on chips in Apple's machines are lower than those on Intel's, and Apple doesn't ship recordable CD drives on most models.

Jobs says those products could be fixed. And Apple says that it's taking some hard knocks in the education market, slipping behind Dell. And now with the drop in after-hours trading, take a look at Apple's stock. Apple is fairly close to level it was on the day that Jobs said he was returning to the company he founded three years ago. That is a bitter and abrupt round trip for shareholders.

BAY: That sure is, Bruce. Bruce, what happened to that cute little cube that they had those high hopes for?

FRANCIS: The Cube will probably go down in history as the "Art House" of computers. It won critical success but really it was kind of a bomb. It didn't -- Apple says it's satisfied with sales, but it fell far short of Apple's projections.

BAY: A tough day there. Bruce, thanks.

Next on MONEYLINE, the day that restored more than a half trillion dollars to the market's value. Has Mr. Greenspan -- is he really giving Wall Street the green light to buy? We'll ask economist and veteran Fed watcher David Jones. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: The pace of expansion of economic activity has moderated appreciably, in part as tighter financial conditions have had some impact on interest-sensitive areas of the economy.

(END VIDEO CLIP)

BAY: While Alan Greenspan today discussed that moderating economy, more evidence emerged from American factories that the slowdown is real. Factory orders overall fell 3.3% in October, the first decline since July. If you take the volatile transportation section out of the equation orders fell more than 1 percent.

Another sign of a slowdown: weak results from retailers. Sales last week at stores open at least a year tumbled more than 2 1/2 percent from the previous week the worst week-to-week performance in four years. That according to the Bank of Tokyo-Mitsubishi. Greenspan also cautioned about the risk of higher oil prices but that was not a big concern today. Light sweet crude tumbled $1.69 to $29.53 a barrel. Down more than 15 percent in just week.

All this was stellar news in the bond pits where traders like to hear that the economy is moderating after torrid growth. The 10-year note jumped nearly a full point and the 30-year surged more than 1 1/2, the yield all the way down to 5.58 percent.

It was December 5, 1996 when Alan Greenspan sparked drama in the markets uttering the now infamous phrase "irrational exuberance." Exactly four years later, Mr. Greenspan did it again, but today the fed set off panic buying instead of panic selling. So, is the enthusiasm warranted?

Joining us now David Jones, chief economist at Aubrey G. Lanston. David, as always, welcome.

DAVID JONES, AUBREY G. LANSTON: Nice to be with you.

BAY: Nice that you joined us for some insight into the Fed's thinking. So, that speech was one for the history books. What about today? What was significance of speech today?

JONES: Today was very significant because for first time the Fed chairman started talked about downside risk. Remember, all year he's been talking about risk on the upside, particularly in inflation. So, whenever we see a speech that changes the tone from the Fed chairman, we want to listen.

BAY: And this was a major change?

JONES: This was major change in tone.

BAY: You said earlier that the Fed chairman diagnosed this economy like a patient. Specifically, what did he say about the health and state of the economy?

JONES: He saw the economy much weaker and most importantly, and the thing to follow closely is he's been watching that relationship between stock prices coming down, weaker wealth effect and a decline in spending. Remember, on the upside it was stock prices going up, a positive wealth effect and people spending too much. As he sees that slow down begin to occur, that means it's for real and it will have a significant influence on how he sees the downside risks in the economy and at some point it's going to have impact on rate cuts, perhaps next year.

BAY: An impact on rate cuts. What do you think this speech today means we'll hear, first of all, at the December meeting?

JONES: Well, at the December I think it'll be fairly small action. A move to what we call a neutral directive, meaning the chairman sees roughly equal balance between risks on the upside and risks on the downside. But he talked about two things on those downside risks. One is oil price hikes, which act like a tax increase on consumer and thus hurt the economy. Also some concerns about credit quality -- lesser-rated borrowers having to pay more for their money. He was worried that the banks might tighten up too much on credit. That was an unusual thing for the Fed chairman to say.

BAY: So what does that then mean that perhaps we'll see and hear at the January meeting?

JONES: I think the January meeting would be a bit early for a rate cut, but I would start in March. That's the second meeting next year, maybe March 20th. I could see maybe three rate cuts after that.

BAY: Three rate cuts, but is March soon enough? There's whole lot of concern that the damage has been done already? JONES: Well, remember, the Fed chairman is still, I think betting on the soft landing. A slowing in growth, but nothing getting into the harder landing recessionary area. He's got to be convinced that this economy is really in trouble before he moves. So, I think January...

BAY: Not there yet?

JONES: January may be too soon, but starting in March I think we'll see some rate cuts for this economy.

BAY: Some and maybe even three?

JONES: As many as three.

BAY: David Jones, thanks as always.

JONES: Thank you.

BAY: Still to come on MONEYLINE, the legal wrangling for the presidency is not quite over yet. All the election news with Wolf Blitzer, that after the break.

(COMMERCIAL BREAK)

BAY: Today's strong markets helped lift some stocks to new 52- week highs, including Dow components 3M and United Technologies. Also hitting new highs, RJ Reynolds, Allstate and Progressive.

As we've been telling you, one major factor behind today's blockbuster rally on Wall Street, a growing belief that the election drama is nearing an end, even though Al Gore didn't show any signs of backing down, saying he'll push ahead with his legal challenge in Florida.

Wolf Blitzer joins us from Washington with today's news from the election front -- Wolf.

WOLF BLITZER, CNN ANCHOR: Thank you, Willow. Vice President Al Gore says he's still optimistic about winning the presidency, despite yesterday's setbacks in his legal effort to overturn George W. Bush's lead in Florida. Gore, speaking to White House reporters today, said he felt he had a 50-50 chance of winning his latest appeal, one that is now before the Florida Supreme Court.

The vice president's lawyers have asked Florida's high court to overturn yesterday's lower court ruling that denied Gore a recount of disputed Florida ballots.

(BEGIN VIDEO CLIP)

AL GORE, VICE PRESIDENT OF THE UNITED STATES: I don't feel anything other than optimistic. I really -- and the team down in Tallahassee feels that way also.

(END VIDEO CLIP) BLITZER: The Florida Supreme Court today set a schedule for hearing that Gore would -- for that Gore appeal. Written briefs are due by noon tomorrow, and oral arguments are scheduled for Thursday morning.

Back here in Washington, the two vice presidential candidates were on Capitol Hill today, meeting the leadership of their respective parties. Bush's running mate, Dick Cheney, said he discussed the transition with Republican leaders, and said Monday's court decision denying the recount only strengthened the Republicans claim of victory in Florida.

(BEGIN VIDEO CLIP)

DICK CHENEY (R), VICE PRESIDENTIAL CANDIDATE: Governor Bush and I feel that it validated the decisions that had been made previously, and indicated once again that we did prevail in the election in Florida.

(END VIDEO CLIP)

BLITZER: Gore's running mate, Senator Joe Lieberman, met Democratic congressional leaders, shoring up support for the vice president's continued legal challenge. Also on Capitol Hill, it was first lady Hillary Rodham Clinton's first day on the job as New York's junior senator. She reported in for orientation today along with other freshman senators.

Clinton defeated Republican Congressman Rick Lazio in the November election.

And these are some of today's highlights in this unprecedented election. You'll get a lot more tonight on this special edition of "THE WORLD TODAY." That's at 8:00 p.m. Eastern, 5:00 p.m. Pacific -- Willow.

BAY: Wolf, beside the Florida Supreme Court, is there any hope for the Gore camp, any wildcards out there?

BLITZER: There's one wildcard. There will be a hearing tomorrow in Tallahassee -- the Seminole County/Martin County issue. That involves the application forms for absentee ballots. The Republicans managed to put in some ID numbers after those application forms were sent in. Democrats, local Democrats, insist that was against the law. A judge will hear this trial tomorrow.

If Gore should win, if those Republican absentee ballots for some reason are thrown out -- it could be 4,000 or 5,000, of course -- that would be more than enough for Gore to win the Florida contest. But that's still a wildcard.

BAY: Wolf Blitzer, as always, thank you.

In tonight's "Tech Watch," safely navigating the markets ups and downs this year has been a challenge for many, including some of the most experienced tech investors. One veteran caught in the downdraft, Safeguard Scientifics founder and CEO Warren V. Musser. Today, Musser, who founded the tech holding company in 1953, announced that he's been forced to sell 7 1/2 million shares, roughly 80 percent of the Safeguard stake, to meet a personal margin call.

In a statement, he said: "I regret being in a position where there was no alternative other than the sale of Safeguard shares. I had never sold a share of Safeguard stock until October 2000 and would not be a seller today except for my personal financial situation."

Safeguard Scientifics stock has been decimated this year. After a hitting an all-time high of 99 in March, it's fallen to the single digits.

Coming up on MONEYLINE, passed over to lead one corporate giant, picked up by another: the latest GE star to make an exit. Who is he is and where he's going, next.

(COMMERCIAL BREAK)

BAY: After the bell today, the GE brain drain picked up speed. Home Depot announced that Robert Nardelli, head of GE's power systems business, will become its CEO effective immediately. Since GE's Jack Welch named Jeffrey Immelt his successor last week, two runners-up for the top GE position have decided it's time to move on.

Home Depot stock, which was up nearly three in trading today, gained more than 2 1/2 after-hours on news of the Nardelli appointment.

And another big Dow winner, 3M, which can credit much of its jump to news that James McNerney, the head of GE's aircraft division, will be 3M's next CEO.

Ge anticipated those two might leave. It names successors to all three finalists for Jack Welch's job six months ago.

Coming up on MONEYLINE, the Fed chairman speaks and investors like what they hear. Could a rate cut be close at hand? Wall Street uses Mr. Greenspan's speech as fuel for a record-setting Nasdaq run- up. Can the index build on these gains? Much more MONEYLINE ahead. Stay with us.

(COMMERCIAL BREAK)

BAY: Caped crusaders rang the closing bell, but Wall Street's real superhero of the day was the world's most powerful banker: Alan Greenspan.

ANNOUNCER: MONEYLINE continues. Here again, Willow Bay.

BAY: In tonight's headlines, Christmas comes early for battered tech investors. The Nasdaq surges an astonishing 10 percent, the single best day in the history of the Nasdaq. Bestowing that gift on Wall Street? Fed chief Alan Greenspan delivering a bold speech and giving investors hope that his anti-inflation crusade is over. But Apple delivers an after-the-bell downer warning that it may post its first quarterly loss in three years.

Our top story tonight, an exuberant Greenspan rally. Investors facing the worst year for stocks in a decade have been desperately seeking a sign that interest rate relief may be on the way. Well, today, they got it and then some from the fed chairman himself.

In a morning speech, Greenspan made clear that he sees the telltale signs of a slowing economy. That means the Fed may be ready to let up on its anti-inflation campaign. Greenspan also suggested that he's keeping a close and concerned eye on Wall Street weakness.

(BEGIN VIDEO CLIP)

GREENSPAN: Still, in an economy that already has lost some momentum, one must remain alert to the possibility that greater caution, and weakening asset values in financial markets could signal or precipitate an extensive softening in household and business spending.

(END VIDEO CLIP)

BAY: Among the other highlights from the speech, Greenspan described the spike in energy prices as "worrisome." He mentioned both the dot.com and the telecom shakeouts as signs of weakness. But he stressed that our current situation is not comparable to the Russian crisis of 1998. And he said consumer confidence appears to be holding up "reasonably well."

The Greenspan effect was felt throughout Wall Street, with both the Dow and Nasdaq posting huge gains. The Dow climbed a steep 338 or more than 3 percent to finish at 10,898. Financials and techs helped lead the charge.

But the Nasdaq truly stole the spotlight today, setting records for the biggest one-day point gain and biggest one-day percentage gain. The tech index soared 274 points, or an unprecedented 10.4 percent, to finish the day at 2,889. The treasury market joined in the exuberance, as Greenspan's remarks pushed the 10-year note nearly a full point higher. And the 30-year bond ended up more than a point and a half.

So, is the rally here to stay? Well, Allan Chernoff takes a look.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): A three-step program for market recovery, and all 3 appear to be arriving at the same time.

Step one, change Federal Reserve policy. Fed Chairman Alan Greenspan telling bankers he's seeing signs the economy is softening. Investors took his comments to mean the central bank will soon end bias towards tightening money policy.

Step two, reduce inflationary pressure. That's happening at the New York Mercantile Exchange. Signs that Iraq will resume oil shipments send crude oil plummeting $1.69 a barrel. In six trading days crude oil is down nearly $6 a barrel.

MARY FARRELL, PAINEWEBBER: Oil prices have an affect on the market both directly and indirectly. Certainly they have an impact on corporate earnings who are huge users of energy, but they also have an impact on consumer spending.

CHERNOFF: And step three, pick a president-elect. The latest court ruling have investors seeing light at the end of the electoral tunnel. Interest sensitive stocks were stand-outs, including bankers J.P. Morgan, Chase Manhattan, and housing stocks like Pulte, Kaufman and Broad and Home Depot, which after-the-bell announced a new CEO, General Electric executive Robert Nardelli.

LARRY WACHTEL, PRUDENTIAL SECURITIES: I certainly feel that the combination of the election clarification and the body language change by the Federal Reserve is sufficient to give us a year-end rally that will continue through December.

CHERNOFF: Investors were in rally mode, rushing back to technology names they had been dumping only days before. Among the stand-outs, fiberoptics firms Ciena, JDS Uniphase, Corning and Nortel Networks. And semiconductor makers PMC-Sierra, Applied Microcircuits, Vitesse Semiconductor and QLogic. Among the most encouraging signs to market watchers, two chip companies -- Xilinx and LSI Logic -- lower earnings forecasts but the stocks displayed the Teflon effect, rising in the face of bad news. s

(END VIDEOTAPE)

CHERNOFF: That is often a sign that a stock has bottomed out. Bad news has already been factored in, and investors are ready to bid it back up. Whether that's the case with the market as a whole remains to be seen. The three-step process to recovery is now underway. But, if any of those three steps turns into a misstep, the market could easily stumble -- Willow

BAY: Allan Chernoff, reporting. Thank you, Allan.

So, if this is the beginning of a Nasdaq recovery, how long will it take to heal this market? Terry Keenan's been looking into some market history for an answer in tonight's "Behind the Numbers." She joins us now from the New York Stock Exchange -- Terry.

TERRY KEENAN, CNN CORRESPONDENT: Well, Willow, the Nasdaq today certainly made a credible start on the road to recovery; but with the index falling 48 percent from its March high to its low last week, there has been a lot of buzz about how long it will be until we see Nasdaq 5,000 again. If history is any guide, don't put the champagne on ice just yet.

A look at major market corrections over the last 100 years shows that pullbacks of the magnitude we've seen this year in the Nasdaq are extremely hard to repair. And the quick turnaround so many investors are hoping for are few and far between. Now here are the numbers, according to the folks at Ned Davis research. The Dow traced a similar pattern to this year's Nasdaq in the crash of 1929, falling a similar 48 percent in a record two months. Although the market made several solid attempts to rally in the early years of the Depression, the Dow didn't hit its 1929 highs again until 1954, some 25 years later. That is not a typo.

As for the Nasdaq, it has only gone through one other bear market worse than this year's in its 29-year life as an index. That was during the period from January of 1973 through November of 1974, when the index plunged a dramatic 60 percent. And once again, the recovery was a tedious one. It took five and a half years of hard work for the Nasdaq to reached its 1973 highs, and even then it only stayed there for a week.

The notable exception is 1987, when the Dow crashed 36 percent from top to bottom in the fall of that year. Despite the speed of the decline, investors picked up the pieces rather quickly. Still, it took two years for the Dow to regain its 1987 highs. Many investors are hoping for that kind of reflexive comeback this time around. We did get lucky in 1987. Let's hope it will happen again this time -- Willow.

BAY: Terry, what's the talk? Are there forecasts out there and what are they saying?

KEENAN: No one's really hazarding a guess. The market has been so strong for so long a lot of people, particularly small investors, do think we'll get back to those old highs. But the economy is an important thing to watch because with the exception of 1987, sell-offs such as we've seen in the Nasdaq have resulted in recessions or in the case of 1929 even worse.

BAY: Thanks, Terry. Terry Keenan at the big board.

Well. our next guest thinks a comeback is entirely possible, and before the close of the year. Elizabeth MacKay, chief investment officer at Bear Stearns is looking for 3.500 on the Nasdaq by year end, and another 10 to 15 percent increase for the Dow and S&P.

Liz, thanks for joining us.

ELIZABETH MACKAY, BEAR STEARNS: My pleasure.

BAY: How significant was today's rally?

MACKAY: Well, certainly very significant, and I think although part of it was probably short covering, we've also had a lot cash building up on the sidelines in the part of mutual fund managers and institutional investors in general. So I think some of that is also being chased into the market. But the positive developments, whether it's the Fed, it oil prices coming down, some resolution of the election, I think could give this some more legs.

BAY: So, give us you take on the Fed. What happens at the next meeting? What happens in January? MACKAY: Well, they probably -- the Fed removes its bias or says the risks are toward inflation in December. They probably don't lower rates, though, until February at the earliest or more likely March. And whereas the Federal Fund's Rate futures are factored in with certainly that there will a rate cut of 25 basis point, I think we do have to see. There are a few months between and we'll have to see, obviously, how the data comes through.

BAY: You're clearly bullish. You think there is more to come, but walk us through the reasons why. In your mind, what's the most important? Is it the political uncertainty out of the way? Is it oil? What about earnings, for example?

MACKAY: I think certainly having the presidential election resolved is a plus, although maybe not quite as important as having oil prices move lower. I think a lot of the dampening effect of oil prices has probably been stronger than the interest rate increases that we've seen around the world in the last year, year and a half. So, I think that is extremely important.

Also, one other event that's been kind of happening in the backdrop is the euro has been strengthening. And lower oil prices would probably be a plus, especially for Europe and for the euro. Certainly, having the Fed at least not working at cross-purposes with us, even if they don't ease, if they're not restrained in terms of money supply, that's very positive. And we thing basically with a 7 percent earnings growth next year, down, admittedly, from double- digits this year, with half the stocks on the S&P selling less than 15 times earnings, given where interest rates are, that's a pretty reasonably even undervalued market.

BAY: Liz MacKay, thanks for giving us your take on the markets tonight.

MACKAY: My pleasure.

BAY: Coming up next on MONEYLINE, some of the day's biggest movers -- Navistar tanks. We'll tell you what sent the truck maker's shares lower.

Plus, will Microsoft put an end to the AOL-Time Warner media merger? We'll have the latest on all the last-minute Washington wrangling. We'll be right back.

(COMMERCIAL BREAK)

BAY: Now to after-the-bell news. As we told you earlier, Apple Computer came out with a stunning earnings warning this afternoon. Let's check out how it is moving after hours.

Amanda Lang has been keeping an eye on all the extended trading and she joins us now with more -- Amanda.

AMANDA LANG, CNN CORRESPONDENT: Willow, well, as you say, Apple has a warning and the stock is falling as a result, down more than 2 after the bell at 14 7/8. Fairly heavy volume on this one. The company saying it will post its first operating loss on a quarterly basis in three years and the first since Steve Jobs returned to the company. The company does say that it will have some investment gains, it's not saying whether that will mean it has a net income or at least break even.

But the company said on a conference call after the bell that revenue will be softer than expected as it works down extra inventory in the channel and fiscal first quarter revenue will be $1 billion, that's $600 million below expectations. The company also hinted that, that could be a problem for other PC companies, but analysts are not so sure.

Home Depot rising after the bell, up more than 2, 2 5/8 to 46 1/4. It's gaining an executive from General Electric, Robert Nardelli will join the company, and that's one to watch tomorrow -- Willow.

BAY: Amanda, thanks.

Checking some of the day's big movers in the regular trading session: Navistar International plunged nearly 11. The truck maker missed Wall Street's fourth quarter estimates by a wide margin today and warned that it may also post a loss in its current quarter. 3Com also plunged today, more than 3. The networking equipment maker warned late yesterday that its second quarter revenue will be lower than forecast because of delayed sales to telecommunications companies.

But Intuit was a winner today, it gained nearly 5 1/2. The software maker will be added to the S&P 500 index after the close of trading on Friday. Despite today's jump, it's been a rocky ride for Intuit shareholders. Its stock is off 43.5 percent from its 52-week high.

In tonight's MONEYLINE "Focus": another objection to the planned marriage of AOL and Time Warner, parent company of CNN. Just a week before an expected Federal Trade Commission vote on the union, Microsoft speaks up in opposition of their $92 billion deal.

Steve Young joins us with the details -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: Willow, the software giant is telling regulators to get tougher with Time Warner, parent of CNN, on terms for opening its system to high-speed Internet service competitors.

(BEGIN VIDEOTAPE)

YOUNG (voice-over): Microsoft confirms to MONEYLINE it's now raised antitrust reservations with the Federal Trade Commission. The issue: Internet access over the nation's second biggest cable TV system.

A combined AOL-Time Warner in many ways would be Microsoft's biggest competitor. The software giant says it was approached by the commission, not the other way around. It won't discuss details except to say it's not looking out for Microsoft; it's looking out for consumers.

FRED MORAN, JEFFERIES & COMPANY: I don't think Microsoft's effort to block the AOL-Time Warner transaction is at all about helping consumers. I think it's about another step in the battle between AOL and Microsoft that has taken place historically, as well as an attempt by Microsoft to insure that they eventually get open access to Time Warner's cable infrastructure.

YOUNG: "The Wall Street Journal" reports Microsoft complained to antitrust enforcers about a deal negotiated between Time Warner and EarthLink, the second biggest Internet service company after AOL. It's for the resale of Internet service using Time Warner's cable TV lines.

Regulators had told Time Warner it had to let a broadband Internet competitor on its system before they'd approve the AOL-Time Warner merger. Antitrust lawyers believe Microsoft is telling regulators that it could get cheaper prices for consumers and other competitors if Time Warner had to negotiate with Microsoft instead of EarthLink on terms of a benchmark deal.

KEVIN ARQUIT, CLIFFORD CHANCE ROGERS & WELLS: There's a tremendous irony in the sense that Microsoft has been so loudly critical of the role that competitors have played in their own antitrust lawsuit, now to turn around and basically be doing the same thing in terms of this merger.

YOUNG: Time Warner had no comment on Microsoft's move, but AOL chief executive Steve Case continues to be optimistic about the merger.

(END VIDEOTAPE)

YOUNG: At an analyst meeting in New York today, Case said he -- quote -- "expects the new company to be running before the new president is inaugurated" -- Willow.

BAY: As you noted, an optimistic Steve Case. Thanks, Steve.

Checking out how those stocks did today -- all three players in this triangle taking part in today's rally -- AOL, Time Warner and Microsoft all up more than 5 percent.

Coming up, a view from Silicon Valley. We'll ask Roger McNamee if he thinks today's buying frenzy for techs means we're out of the woods.

(COMMERCIAL BREAK)

BAY: Of the five best percentage gains ever, all but one has occurred this year, what's shaping up to be one of the worst years ever for the index. That shows that these one-day rallies have failed to show any follow through.

Joining us now, one tech insider who is skeptical that today's rally will show follow through: Roger McNamee of Integral Capital Partners.

What? This is a one-day wonder, this rally?

ROGER MCNAMEE, INTEGRAL CAPITAL PARTNERS: I'm hoping not, Willow. I mean, we've been run through a meatgrinder all year long, and I'm praying that this is the real thing, but I'm not counting on it.

BAY: You're not counting on it; why not?

MCNAMEE: Very simply put, we've had a market correction that's been just gigantic and now fundamentals are deteriorating. We're coming into preannouncement season. You're already, because of the new fair disclosure rules, seeing earlier preannouncements than normal. It looks like we're going to have an above-average number this quarter.

BAY: So what then gets us out of this Nasdaq decline? I mean, your out -- your outlook for the future is not pessimistic, am I correct?

MCNAMEE: No, in fact, it's actually -- I'm increasingly bullish. I think risk/reward increasingly favors buyers of stocks, because the average Internet stock is down literally 80 percent since last Friday.

BAY: That's how well we know...

MCNAMEE: And the average hardware stock down 70 percent. So I think risk/reward is coming our way, but we're going to have to work our way through at least another month or two of bad fundamentals.

BAY: But so then what gets us out of it? What turns us around? And who will the leaders be getting us out of it?

MCNAMEE: Frankly, I think coming out of it you're going to get it mostly from -- you're going to dry up the sellers. Eventually, everybody's going to get so negative there won't be anymore people to sell and the good things will start rising again.

I think you're going to see a transition of technology kind of to real-time stuff. And...

BAY: Real-time stuff means what?

MCNAMEE: The thing about e-commerce that's so exciting is that companies can connect in real-time to their customers and their suppliers and actually all communicate. The world, it used to be all about databases and storing stuff that was old. Now it's about connecting people in real-time and actually communicating.

BAY: So are you saying follow this trend, real-time?

MCNAMEE: I'm saying that there is a new architecture enabled by the Internet that's just working its way through the venture stage now. You've seen Ariba and you've seen a small -- Agile Software, they've already gone public on this model. But there are literally dozens of companies behind them. The networking companies provide that infrastructure. That's going to be the theme to play.

The PCs, that's the old world. Databases are the old world. And the new world, I think, will be real-time.

BAY: And in this new world any of the big-name players? An Oracle, a Cisco?

MCNAMEE: Cisco remains I think a core, core provider into this space, but I think it's much less favorable. If Oracle is smart, they can play. If Microsoft gets it back together, they can play. But I think it tends to favor a new guard. And so you're going to see new companies doing this, and you know, maybe Amazon.

BAY: But they're not quite there yet?

MCNAMEE: Not quite there yet.

BAY: Roger McNamee, as always, thanks.

MCNAMEE: Always a pleasure.

BAY: Stay with us.

(COMMERCIAL BREAK)

BAY: There was one sector left out of today's rally: the grocery stocks. Albertson's lost 1 1/2: that after missing quarterly estimates and warned about the current quarter late yesterday. Supervalu plunged more than 3 1/2 after warning today that year-end results will disappoint. Safeway down 2 3/4. The supermarket chain agreed today to buy closely held Genuardi's Family Markets for an undisclosed price. Winn-Dixie Stores and Kroger were also lower on the day.

Well, it was the biggest rally ever on the Nasdaq, and Myron Kandel says you can send your thank you notes to a straight-talking Fed chairman.

Myron, he was unusually straight-talking today, was he not?

MYRON KANDEL, CNNFN FINANCIAL EDITOR: Absolutely, Willow. You know, Greenspan-ese wasn't -- wasn't in evidence today. He made it very clear that the Fed is going to change its stance. It's no longer worried about inflation, or at least not saying it is, and it thinks the economy is slowing and the time has come for a change in Fed policy.

BAY: Obviously, a powerful rally today, but is it the beginning of a year-end rally?

KANDEL: Well, I think it was a combination of not only Greenspan, but the fact that it looks more and more like the presidential indecision is coming to a quicker end than we thought a little while ago. And the market really likes that. I think that's been overhanging the market. One caution, however: Should the Gore people make some victories, win some victories in court, I think that'll send the market tumbling, not because they're against Gore necessarily...

BAY: It's just that uncertainty, that wet blanket hanging over.

KANDEL: Exactly. So with that caveat, I think let's not be sure that we're -- that we're home-free, but we're going to have a solid rally before the end of the year.

BAY: Getting your 12,000 in sight?

KANDEL: Oh, boy, I feel a lot better about that tonight.

BAY: Myron Kandel, thanks. Up next, "Ahead of the Curve." You're watching MONEYLINE.

(COMMERCIAL BREAK)

BAY: Investors will be glued to the tape tomorrow to see if the markets can hold onto their stunning gains from today, and they could get some help. Fed Vice Chairman Roger Ferguson, Fed Governor Edward Gramlich and Chicago Fed President Michael Moskow all will speak separately tomorrow. We'll see if they echo comments today from the top banker, Alan Greenspan.

Also more on the economy with third-quarter productivity and costs as well as the Fed's "Beige Book." And Hewlett-Packard will meet with analysts in Palo Alto, California.

That's MONEYLINE for this Tuesday. I'm Willow Bay. Stuart will be back tomorrow.

Good night from New York. "CROSSFIRE" is next.

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