After a one-day slap that left cheeks scarlet with humiliation, anger and fear, Wall Street's analyst community rushed to a defensive position on Tuesday morning. In notes to clients, brokerages reiterated ratings on drugmakers and defense contractors, while keeping the pressure on technology.

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Merrill Lynch

Chief U.S. Investment Strategist Christine Callies set the tone prior to trading on Tuesday morning, encouraging investors to buy stocks, despite the current situation.

"Investors should be rewarded by accumulating shares at these levels," she wrote, keeping a long-term perspective on what she termed a near-term problem.

Callies said that the market's biggest immediate concern has as much to do with psychology as fundamentals. She said that investors incorrectly feel that the current earnings situation is much worse than it was in the fourth quarter, when a record number of companies preannounced that earnings would miss estimates. According to information provided by

I/B/E/S

, this quarter was quite similar to last quarter -- with the same number of positive and negative preannouncements.

That said, the fourth quarter was devastating. The situation is still rather awful, just not any worse than last quarter.

Callies' colleague, Chief Quantitative Strategist Richard Bernstein, argued that a more conservative market approach will take shape in the next five years, advising clients to stay out of technology.

"The only sectors that we are currently at underweight are tech and telecom." he wrote. "Investors should keep in mind that simply because share prices of the stocks are down in the tech/telecom group, it does not automatically make them value plays. In fact, stocks can get more overvalued as their price goes down and vice versa."

Earnings are still decelerating. And according to Bernstein, in the early stages of earnings deceleration, where we are right now, the

Fed

will lose the initial battle. In fact, Bernstein said that historically speaking, when earnings begin to slide, it lasts for a total of six quarters. That means companies face at least three more quarters of slowing profitability.

"Due to this deceleration," he wrote, "we are still arguing in favor of defensive and counter-cyclical themes. We still like consumer staples, health care, energy, utilities, engineering and construction, aerospace and defense, high-quality financials and small-cap stocks."

Still, expect Fed easing to help the economy at some point -- just not this quarter. And some of those industries that will benefit most from an increase in liquidity were being touted by analysts.

Goldman Sachs

analyst Howard Rubel upgraded blue-chip

Boeing

(BA) - Get Report

to the U.S. recommended for purchase list from market perform, naming a price target of $80 on the stock. His note also upped year-over-year earnings by a decent margin, saying profits will go from $2.88 a share in 2000 to $3.75 in 2001 and finally $4.45 in 2002.

"Modest growth in the military market coupled with expansion of the space business should augment growth in the commercial aircraft operation," Rubel wrote.

Elsewhere,

Credit Suisse First Boston

started

Kimberly-Clark

(KMB) - Get Report

, the maker of Kleenex and Scott Towels, with a buy rating and a price target of $83.

Upgrades

Mentor Graphics

(MENT)

: UP to market outperform from market perform at Goldman Sachs.

Downgrades

Advanced Micro Devices

(AMD) - Get Report

: DOWN to hold from buy at

UBS Warburg

.

Foundry Networks

: DOWN to long-term market perform from long-term attractive at

Robertson Stephens

.

Linear Technology

(LLTC)

: DOWN to long-term attractive from long-term buy at Robertson Stephens.

Phelps Dodge

(PD) - Get Report

: DOWN to sell from hold at CSFB.

Stanford Microdevices

(SMDI)

: DOWN to long-term attractive from long-term buy at Robertson Stephens.

Stanley Works

(SWK) - Get Report

: DOWN to hold from buy at UBS Warburg.

Initiations

Handspring

(HAND)

: NEW hold at UBS Warburg; price target: $23.