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Defying investors' fears that its earnings would fall victim to slumping tech demand, Dell turned in a surprisingly profitable third fiscal quarter by taking a big ax to costs.

Although Dell's (DELL) sales were more than $1 billion short of Wall Street estimates for the quarter that ended Oct. 31, a combination of job cuts, a hiring freeze, and lower materials costs helped earnings reach 37¢ per share, beating analysts' modest expectations of 31¢ per share. Shares of Dell gained more than 5% in extended trading. Earlier, the stock had lost 54¢, or 5.2%, to close at 9.81, amid a market slump.

Revenue and net income declined from a year earlier, but investors said Dell was successfully protecting profit amid a global economic slowdown that's sapped business and consumer demand for new computers and other tech gear. "In previous quarters it looked like the company was willing to grow share at any cost," says Bill Kreher, a technology analyst at Edward Jones who has a buy rating on Dell. That's what happened in the second quarter, when profit fell 17% on overly aggressive price cuts (BusinessWeek.com, 8/29/08). "In this environment they're aware that investors are more concerned with the bottom line," Kreher says.

Tough Act to Follow

For now, Dell may need to keep running the cost-cutting play, one of its few options in an environment that's forced other tech bellwethers, including Intel (INTC) and Cisco Systems (CSCO), to issue dour forecasts. Dell sliced 2,200 jobs and took advantage of lower PC component prices, analysts said. "Can they continue to cut costs like this?" says Jayson Noland, an analyst at Robert W. Baird, who has a neutral rating on Dell shares. The company may have to do so to boost its stock performance, since "nobody expects the economy to be a benefit to anyone."

From a cost-cutting perspective, the third quarter will be a tough act to follow. Sales declined 3%, to $15.16 billion, missing analysts' consensus expectation for $16.22 billion in sales. Net income fell 5%, to $727 million. But operating expenses fell 11%, and operating income rose 22%, the biggest gain in two-and-a-half years. Dell's consumer PC business, which it's counting on for future growth, posted an operating profit of $112 million, more than the last six quarters combined, according to Baird's Noland.

During a conference call with analysts, CEO Michael Dell said the company would continue to emphasize profit over market share. "Given the choice between profits and growth, we're going to go for the profits," he said. That's in large part because of "deteriorating demand" for tech products, Chief Financial Officer Brian Gladden added. "We had a stronger August than we had September or October," he told analysts. Cutting costs "is the one lever we can control."

Hedge funds shoring up cash on redemption fears appear to drive sell-off.

Wall Street morphed an afternoon rally into a crashing close on Friday.

Observers attributed at least some of the unrest to forced selling by hedge-fund managers as jittery investors pull their money out of the vehicles.

Hogan, chief market analyst at Jefferies, said the afternoon increase was spurred by comments from U.S. Treasury Secretary Hank Paulson on the use of the Troubled Asset Relief Program. (See "The U.S. Turns On A Dime.")

"It felt better to hear Paulson explain some of the head-scratchers to us, but the overreaching feeling on the market though is there's a great deal of pressure from folks going to see some redemptions," Jefferies said. "November 15 is an important date, and hedge funds are selling stocks to raise cash."

By the end of the day, the Dow Jones industrial average fell 3.8%, or 337.94 points, to 8,497.31, while the Nasdaq composite index tumbled 5.0%, or 79.85 points, to 1,516.85, and the S&P 500 index dropped 4.2%, or 38.00 points, to 873.29. The yield on the benchmark 10-year U.S. Treasury note fell to 3.73% from 3.82% Thursday.

Citigroup (nyse: C - news - people )'s share managed to stay in positive territory, closing up 0.7%, or 7 cents, to $9.52. (See "At Citi, Pandit Calls For Calm.") On Friday, a news report surfaced that 10,000 job cuts would hit Citi's rank and file next week. Other reports had the bank cutting 10.0% of worldwide jobs through layoffs, divestitures and attrition. Citi has 352,000 employees.

In a memorandum Friday afternoon obtained by Forbes.com, the embattled Pandit invited all employees to a Monday morning "town hall" meeting. He also sought to reassure Citi's hundreds of thousands of employees worldwide that Citi's "capital is plentiful, we have abundant liquidity and our revenue is strong."

The broader financial sector didn't do as well as Citi. By the end of the day the Financial Select Sector SPDR (nyse: XLF - news - people )exchange-traded fund fell 5.1%, or 68 cents, to $12.73.

The retail sector hasn't looked so bad in years. In addition to the U.S. Commerce Department reporting the largest monthly drop in retail sales on record, Abercrombie & Fitch (nyse: ANF - news - people ), J.C. Penny (nyse: JCP - news - people ), along with others, warned that their earnings will come in below Wall Street's already-meager expectations. (See "Teens Steer Clear Of Abercrombie.")

Wall Street headed toward a lower open Wednesday, as investors try to assess how bad the global economic slump is and worry about the trend in consumer spending.

The market, which fell for the second-straight session on Tuesday, will get an update from Treasury Secretary Henry Paulson on the government's financial rescue package at 10:30 a.m. EST. There are no major economic reports due to be released during the session.

There was fresh evidence that the financial crisis is causing consumers to tighten their purse strings.

Department store operator Macy's Inc. reported a loss of $44 million for the third quarter as results were weighed down by charges related to a consolidation of several divisions. The consumer electronics chain Best Buy Co. cut 2009 guidance on fears that consumer spending will erode even further.

A big drop in consumer spending is a major concern since it drives more than two-thirds of the U.S. economy. Investors are also awaiting the government's retail sales figures on Friday and earnings from Wal-Mart Stores Inc. on Thursday.

Battered shares of the top U.S. automakers might again come under pressure. House Speaker Nancy Pelosi wants Congress to support a financial bailout for the troubled U.S. auto industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy.

President-elect Obama, when he met with President Bush at the White House on Monday, urged Bush to support aid for struggling automakers, and Democrats in Congress have begun drafting legislation that would give General Motors, Ford and Chrysler access to $25 billion of the rescue funds.

Dow futures shed 59, or 0.69 percent, to 8,578. Standard & Poor's 500 futures dropped 4.60, or 0.52 percent, to 888.40. Nasdaq 100 index futures stumbled 10.20, or 0.84 percent, to 1,212.80.

On Tuesday, the Dow fell nearly 180 points as it became clearer to investors that it's going to be hard to rely on the average consumer to pull the economy out of its downturn. The market also closed lower amid similar concerns on Monday.

Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.21 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.74 percent from 3.76 percent late Monday.

Lower yields indicate stronger demand.

Crude slipped below $59 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude was down 85 cents to $58.48 a barrel, after earlier falling as low as $58.55, in electronic trading on the New York Mercantile Exchange.

In corporate news, American Express Co. is said to be seeking about $3.5 billion from the U.S. government to help boost its balance sheet, according to a report in The Wall Street Journal citing people familiar with the situation. AmEx, the No. 4 U.S. credit card issuer, won approval Monday from the Federal Reserve to become a bank holding company.

Prudential Financial Inc. said late Tuesday its 2008 annual dividend will be roughly half of what it paid out to shareholders last year. The insurer said it will pay a dividend of 58 cents per share on Dec. 19 to shareholders of record at the close of business on Nov. 24. Last year, the company paid a dividend of $1.15 per share.

After the closing bell, semiconductor equipment maker Applied Materials Corp. and Computer Sciences Corp., an information technology outsourcing firm, are also set to report.

Overseas, Japan's Nikkei closed down 1.29 percent and Hong Kong Hang Seng fell 0.73 percent. In European trading, London's FTSE 100 was up 0.52 percent, Germany's DAX fell 0.22 percent, and France's CAC-40 added 0.11 percent.

Wall Street heads into another turbulent week with investors set to pore over a government report on retail sales and earnings from Wal-Mart Stores Inc. to get a better reading on the consumer.

There are growing signs that the deepening economic slowdown has caused Americans to tighten their purse strings. There was fresh evidence of this past week when retailers posted the worst October same-store sales in 35 years -- and analysts believe the upcoming holiday shopping season could be among the slowest in decades.

With consumer spending driving more than two-thirds of the U.S. economy, investors will be paying close attention to earnings outlooks for some of the nation's biggest retailers. Wal-Mart, the nation's biggest retail chain, will post results on Thursday. Kohl's Corp., JCPenney Co., Macy's Inc., and Abercrombie & Fitch Co. are scheduled to release reports as well.

Investors will get an overall picture of consumer spending on Friday when the Commerce Department releases its October retail sales index. The closely watched gauge is expected to show sales dropping 1.2 percent for the month after falling 1.2 percent in September. Excluding the battered automobile industry, sales are expected to have fallen 0.9 percent.

The market, still trying to recover from October's devastating losses, will likely zigzag as investors react to these reports. This has been the pattern during the past few weeks, with major indexes swinging from one extreme to another in capricious trading.

Many analysts believe this volatility is part of a bottoming-out process. The real test is to see in the coming days if investors have already priced in the potential for negative news or if fear of a protracted recession will trigger another stream of selling.

"The news is going to be really bad, and that shouldn't be a surprise to investors," said Peter Cohan, principal of Peter S. Cohan & Associates. "But, I'm feeling uncomfortable that the market is a daily mood ring for the economy. The small investors are largely out of the market, and what you end up with is a small number of very large players making decisions."

Cohan pins the volatility on hedge funds, pension funds, and big university endowments unloading stocks to raise collateral and scooping up undervalued stocks to seize opportunity. He believes this will eventually result in a more stable trading environment that will lure retail investors back, and add stability to major indexes.

Hedge funds could come to center stage this week if they receive another wave of redemption requests from investors. The upcoming Nov. 15 deadline for redemptions could cause further instability in the market, Cohan said.

Wall Street had enjoyed its biggest Election Day rally in history last Tuesday, but could not cling to those gains. This was followed by a two-day loss of about 10 percent in the major indexes, including a 929-point drop in the Dow, as investors turned their focus once more to the economy's woes.

For the week, the Dow Jones industrial average and broader benchmarks such as the Standard & Poor's 500 index lost about 4 percent after surging 10 percent or more the week before. Technical analysts are keeping a close eye on all the data this week, with continued concerns that the Dow will test its Oct. 10 intraday low of 7,882.51.

Stock futures trading early Sunday evening showed a slightly positive start for the markets. S&P 500 futures gained 0.83 percent, while Nasdaq 100 futures rose 0.66 percent.

There are a number of other reports on tap that might give more insight into the economy. On Thursday, Wall Street gets readings on the labor market and trade deficit, followed by a look at consumer sentiment on Friday. Trading on Tuesday could be more subdued with the bond market and some banks closed due to Veterans Day.

Additionally, investors are watching for developments with General Motors Corp., Chrysler and Ford Motor Co. after the automakers met with Congressional leaders last week to secure financial help.

Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.

"We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy," Pelosi, D-Calif., and Reid, D-Nev., wrote.

Even more news might be generated out of Washington with the possible selection of a new Treasury secretary by President-elect Barack Obama. He has already identified that the economy is the new administration's biggest priority, and a Treasury pick could lift stocks.

Among those being considered for the post include former Treasury Secretary Lawrence Summers, Federal Reserve Bank of New York President Timothy Geithner, and former Federal Reserve Chairman Paul Volcker.

It was worse than Wall Street expected. (GM) lost a colossal $4.2 billion. But more dire is the company's cash burn of $6.9 billion, which has GM delaying some new models, cutting deeper into costs and—most important—putting a possible acquisition of rival Chrysler on the back burner.

The dismal results, which were driven by plummeting sales amid a recession and credit crunch (BusinessWeek.com, 11/3/08), show just how precarious GM's financial position is. Without an injection of funds or a bridge loan from the government, GM's $16.2 billion in cash could shrink this year to the minimum the company needs to run the business, which analysts estimate to be between $10 billion and $12 billion.

And the picture could get even uglier. GM announced a series of cuts to save $5 billion in cash, but even with those moves the company could run short in the first half of next year. Standard & Poor's cut GM's credit rating (BusinessWeek.com, 11/7/08), to CCC+ from B- on Friday, citing the company's accelerated cash burn rate. "We expect cash outflows to quickly reduce the company's liquidity during the next few quarters, perhaps to levels that would force GM to consider a financial restructuring, even if it does not file for bankruptcy," said S&P in a statement.

If GM can't complete asset sales, raise money in the financial markets, or get government assistance, the company will be short next year. A financial collapse isn't out of the question.

BlackRock chairman and CEO Larry Fink

(Fortune Magazine) -- At 11 o'clock in the evening on Saturday, Sept. 13, Larry Fink was about to board a flight from New York to Singapore. The following Monday he was scheduled to meet with the managers of several Asian sovereign-wealth funds. For the head of BlackRock, one of the world's largest asset managers, this trip was a huge opportunity that could mean billions of dollars in new business.

Still, he knew that the next 19 hours would be a bad time to be unreachable. Just a few miles west of the airport, bankers and government officials were huddled in the offices of the New York Federal Reserve Bank to hash out the fates of three of the biggest financial institutions on Wall Street - namely, Lehman Brothers, AIG, and Merrill Lynch. Two of the troubled firms - Lehman Brothers and AIG - were BlackRock (BLK, Fortune 500) clients; Merrill Lynch was BlackRock's biggest shareholder.

Fink made one final call before boarding. "Can I get on this plane?" he asked a colleague inside the meetings at the New York Fed.

"You can go," came the response.

At that moment Fink thought Barclays (BCS) had agreed to buy Lehman. So he boarded. As Fink took off, he could see through his window the lights of lower Manhattan. He did not know it then, but it would be the last time he would see Wall Street - at least the one he recognized - in one piece.

When Fink landed in Singapore at 5 a.m. on Monday morning, he checked his BlackBerry and scanned the headlines: Lehman bankrupt, Merrill Lynch bought by Bank of America, AIG collapsing. "I felt like Charlton Heston landing on the Planet of the Apes," says Fink. "My world had transformed."

In that moment, Fink knew as well as anyone how treacherous the capital markets had become. As chairman and CEO of BlackRock, he had seen the hidden liabilities of just about every financial institution that would be pulled into this whirling vortex of doom.

AIG, Lehman Brothers, Fannie Mae, and Freddie Mac had all hired BlackRock over the past few months. As Fortune went to press, Treasury Secretary Hank Paulson had BlackRock on his short list to manage, well, your money - a chunk of the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP.

If Paulson and Federal Reserve chairman Ben Bernanke have been the public faces of the financial crisis, Fink has been its behind-the-scenes fixer and father confessor. The reason so many CEOs have kept him on speed dial in recent months is simple: No other firm is trusted to pick through the exotic securities infecting banks' balance sheets and place an accurate value on them.

At a time when the credit-rating agencies like Moody's and Standard & Poor's have lost face, BlackRock's valuations have become a kind of de facto Good Housekeeping seal of approval that buyers and sellers of distressed assets trust.

"I think of it like Ghostbusters: When you have a problem, who you gonna call? BlackRock!" says Terrence Keely, a managing director at UBS, who worked with BlackRock last spring to dispose of a troubled $20 billion portfolio of mortgage-backed securities (BlackRock unloaded it for $15 billion).

But before anyone organizes a ticker-tape parade for Fink, keep in mind that 25 years ago he was an early and vigorous promoter of the CMO (collateralized mortgage obligation). Today the CMO and other asset-backed securities have become the monsters responsible for the credit crisis.

BlackRock itself has not been unscathed: Its money market funds saw $50 billion withdrawn in the month of September. In the third quarter, assets in its fund-management business lost more than $100 billion, dropping from $1.4 trillion to $1.26 trillion. Its stock, trading at $113 on Oct. 23, is down 40% for the year.

"The market declines are so severe, BlackRock is not immune," says Fink, 55. "I've been in this business for 32 years, and in a 20-week period - from Bear Stearns's collapse until now - the landscape has changed so dramatically. It's very unsettling. Very disorienting."

So the question is, Can Fink stop this monster - and make a profit along the way?

To understand how BlackRock found itself at the center of the financial crisis, you need to understand Larry Fink's long, strange relationship with mortgage-backed securities. Fink sold his first CMO in 1983 while working as a bond trader at First Boston. He pitched this new product to Freddie Mac (FRE, Fortune 500) as a way for the company to offload $1 billion in mortgages.

Executives at Freddie agreed to let First Boston take mortgages, pool them, slice them, and sell them as securities. This hugely profitable offering made Fink a rock star at First Boston. Soon he was creating similar products for GMAC and other finance companies.

Back then the mortgage markets were insular. Commercial banks knew their borrowers, and investment bankers packaging loans knew the investors to whom they were selling the CMOs. But Fink's hot streak at First Boston ended in 1986 when his fixed-income desk got out of control.

"I lost $100 million in one quarter, and I didn't know why. And we made $130 million the quarter before, and I didn't know why we made so much money. So we should have been fired the quarter we made the money. The whole concept for BlackRock grew out of that experience at First Boston. I said, 'We are not going to live that again. We are going to have systems to analyze risk,'" Fink says.

FINANCIAL MARKET SUMMARY
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	DJIA 8,577.91  -733.08    NASDAQ 1,628.33  -150.68    SPX 907.84  -90.17    S  3.33 -0.71    LMT  87.47 -8.30    FNM  1.00 -0.10    DJIA 8,577.91  -733.08    NASDAQ 1,628.33  -150.68    SPX 907.84  -90.17    S  3.33 -0.71    LMT  87.47 -8.30    FNM  1.00 -0.10

Personalize Ticker | Updated 4:00 PM, 10/15/2008	Disclaimer | © MarketWatch Inc. Source: Interactive Data Corp

Wall Street staged another massive sell-off today as recession fears gripped the market and Federal Reserve Chairman Ben S. Bernanke confirmed that an economic recovery will take time.

The Dow Jones industrial average fell more than 700 points, giving back nearly all its record gain from Monday.

The Dow closed down 7.9 percent, or 733 points, at 8,578. That follows a loss of 77 points yesterday, which nearly wipes out Monday's 936-point gain. The Standard & Poor's 500-stock index was off 9 percent, with a 90-point decline, and the tech-heavy Nasdaq was down 8.5 percent, losing 151 points.

This was the second-largest point loss in the Dow's more than 100-year history and ninth-largest on a percentage basis. Seven of the Dow's 20 greatest point losses have occurred since the recent financial turmoil began in September. The volatility has raised concerns among some analysts that stocks could slide past the losses of last week.

The markets opened down today as investors reacted to new data showing that consumer spending took an unexpectedly hard fall last month and to earning reports from several banks demonstrating the impact of the financial crisis on corporate balance sheets. But the decline accelerated in the afternoon as Wall Street digested new data from the Federal Reserve showing a slowing economy around the country and Bernanke's speech today.

After a massive rally Monday, analysts were expecting some pull back but had hoped investors found comfort in the latest government efforts to stabilize the financial sector, including making direct capital injections into major banks. Following yesterday's less dramatic declines, Wall Street's attention seems focuses on economic weakness and feeble corporate profits.

Investors' concerns were reinforced by the Federal Reserve's release of its Beige Book, information about the economy from its 12 regional banks, that found economic activity weakening across all its districts and manufacturing slowing in most areas.

That was preceded by a speech by Bernanke, who said that government efforts to rescue the economy will not work immediately.

"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away," he said.

The Fed news was exacerbated by a bleak consumer spending report today from the Commerce Department for September, peak back-to-school shopping season, which reinforced fears that the country is slipping into a recession. Consumer spending makes up two-thirds of economic activity.

"People intuitively knew we were in a recession but don't like having it confirmed to us," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

Retail sales were down 1.2 percent in September, the steepest monthly decline in three years, according to the Commerce Department.