Charles Schwab & Co., Inc.
Email Alert

Morning Market View(TM) 
for Friday, November 2, 2001
as of 9:30AM EST
Information provided by Schwab Center for Investment Research


WEAK EMPLOYMENT DATA FAILS TO PHASE MARKETS

Equity index futures were lower but climbing back from earlier 
losses suffered as a result of this morning's dismal employment 
report. The unemployment rate climbed to its highest level in 
almost five years as the impact of the terrorist attacks has 
served to prolong the economic malaise. In equities news, the 
Justice Department has officially agreed to a settlement in the 
anti-trust case against Microsoft Corp. (MSFT,62,f1).

The U.S. Justice department announced that it had agreed to a 
settlement with Microsoft, which will be presented to the 
Federal Judge overseeing the case today. The accord will impose 
a "broad range" of restrictions for the company lasting for at 
least five years. The 18 states involved in the antitrust case 
have not agreed to the provisions of the settlement and are 
expected to ask Judge Colleen Kollar-Kotelly for an extension of 
time to review the terms.

BEA Systems (BEAS,11.70,f1) reduced its 3Q and 4Q guidance after 
the bell last night and said that it would be forced to cut up 
to 10% of its staff, owing to the sluggish economy. The 
application server software maker said it expects 3Q earnings, 
excluding charges and items, of $0.05-$0.06 per share, below the 
First Call $0.08 per share consensus, amid lower than expected 
revenue. BEAS is forecasting 4Q revenue growth in the low single 
digits and earnings of $0.06-$0.07 per share, below the Street's 
mean $0.09 per share estimate.

Health insurance giant Cigna Corp. (CI,72) posted 3Q profits of 
$1.66 per share, excluding a $33 million gain from the sale of a 
reinsurance business, well ahead of the First Call consensus 
estimate of $1.58 per share. However, the company's medical risk 
loss ratio rose by 1.6%, suggesting potential profit margin 
erosion going forward. Medical risk loss ratio is a key measure 
of medical cost coverage ability.

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TREASURY AND ECONOMIC SUMMARY 

Treasuries were mixed after swinging wildly following the 
release of this morning's weaker-than-expected employment 
report. According to the Labor Department, the unemployment rate 
rose to 5.4% in October from September's 4.9% level. Analysts 
per Dow Jones Newswires were looking for a rate of 5.2%. 
Non-farm payrolls declined by 415,000, the largest one-month 
drop since 1980, after September's downward revision to a 
213,000 decline from the previously reported 199,000 drop. 
Average hourly earnings rose to $14.47 from the prior month's 
$14.45. The services-producing sector cut 241,000 jobs, while 
the manufacturing industry eliminated 142,000 positions. The 
bleak employment situation, reflecting the economic impact of 
the terrorist attacks, leaves the door open for continued 
aggressive monetary easing.

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WORLD MARKETS 

Technology stocks paced the advance in Europe on the heels of a 
Semiconductor Industry Association report yesterday. The report 
indicates that September was the third-consecutive month of a 
decelerating demand slowdown. However, the gains were muted 
somewhat by the release of a worse-than-expected German 
Purchasing Managers' Index report. The business index for 
October fell to 42.0 from September's 45.1, its 
seventh-consecutive month of contraction. UK insurance giant 
Prudential PLC (PUK,21) said that it will cut 2,100 jobs to 
lower expenses. Consumer staples giant Unilever (UL,29) reported 
better-than-expected 3Q operating profits and stuck to its 
guidance for at least 10% growth in fiscal year earnings. The 
euro was slightly higher against the U.S. dollar. The Bloomberg 
European 500 index was up 0.43% as of 8:53 a.m. EST.

Asian stocks were mixed but mostly higher on strength in the 
brokerage and technology sectors. Results were mixed as 
semiconductor stocks got a big boost on the favorable SIA 
report, but electronic components maker TDK Corp. (TDK,47) 
posted weak fiscal first-half profits, lowered full-year 
guidance and warned of more job cuts amid waning demand. 
Although a Liberal Democratic Party panel is pushing for 
inflation targets in Japan, Bank of Japan Governor Masaru Hayami 
called the idea "absurd," despite rhetoric from the BOJ Finance 
Minister aimed at mitigating deflationary pressures. The yen was 
slightly higher against the dollar.

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FUTURES WATCH 

In the December Globex futures contract as of 8:53 a.m. EST, the 
S&P 500 index was unchanged (1 point below fair value) while the 
Nasdaq 100 index was also unchanged (7 points below fair value). 
The December DJIA futures contract was down 15 points (27 points 
below fair value) and the December crude oil futures traded on 
the NYMEX were down $0.12 at $20.27/barrel.

William Johnson, Market Analyst

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