Following reports of an Israeli helicopter attack on the headquarters of Palestinian President Yasser Arafat this morning, tech investors lost their morning gumption. The

Nasdaq Composite Index kicked up its heels at the open, following some good earnings news from semiconductor companies and opticals. The Nasdaq soared as much as 80 points, fell into the red and was lately trying to place itself back in positive territory.

The

Dow Jones Industrial Average, meanwhile, tumbled into the red after home improvement retailer

Home Depot

(HD) - Get Report

warned this morning that slower sales -- from lower retail prices -- had forced it to revise its earnings outlook downward. Home Depot was lately shaving a full 70 points off of the blue-chip index. But new news on the Middle East helped kick the index down even further. Brokerage

J.P. Morgan

(JPM) - Get Report

was also a big drag. It was lately off $7.06 to $139.56. The Dow was lately off 185 to 10,228.

The

Nasdaq was lately fighting to stay positive, lately up 17 to 3154. And the

S&P 500 was 11 lower to 1346.

Following the reports out of the Middle East, crude oil prices surged almost 8 percent on concern that the violence could disrupt supplies from the region. The helicopter attacks follow two weeks of Israeli-Palestinian violence in which at least 97 people have been killed.

Rising energy prices are a major concern for investors, and many companies have already blamed them for weakness in earnings. The higher prices also threaten to cut into consumer spending and raise inflation, neither of which the market wants to see right now. As the violence has escalated, oil prices have already gained 16 percent this week.

With this recent setback, it is pretty unclear what could take the market higher. After a full month of horrific and high-profile earnings warnings and a tidal wave of selling throughout much of the market, investor confidence is sorely shaken. This morning, it looked like a temporary turnaround, at the very least, might be at hand. But that was earlier.

There were a few elements in the mix yesterday that portended well for the formation of a bottom -- like awful breadth (when declining stocks outpaced advancing ones) and hefty volume. Nasdaq losers outpaced winners by a count of 29 to 11, and 20 stocks finished down for every nine stocks that finished up on the

New York Stock Exchange. And it was the seventh-highest volume session in Nasdaq history.

Optical stocks and semiconductors intially shouldered the Nasdaq's run into the green this morning after a few chipmakers --

Advanced Micro Devices

(AMD) - Get Report

and

Applied Micro Circuits

(AMCC)

-- reported better-than-expected earnings last night. And opticals firm

Corning

(GLW) - Get Report

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announced it expects to report better-than-expected earnings for third quarter. Corning was gaining 5.2%.

But there were some mixed signals on the tech sector from analysts this morning.

Lehman Brothers

lowered its 12-month prices target on AMD.

Prudential

also cut its price target to $25 from $30 and lowered its fourth-quarter earnings per share estimates and its 2001 EPS outlook. AMD was lately down 1%.

Painewebber

raised its earnings per share estimates for this year and next for Aplied Micro Devices. It was 4% higher.

Sector Watch

Following the reports of violence in the Middle East, pretty much everything was a bloody shade of red, though the energy stocks were getting the obvious boost, and semiconductors didn't stay down for long.

The

American Stock Exchange Natural Gas Index

was up 2.4% and the

Chicago Board Options Exchange Oil Index

was up 2.7%.

Semiconductor stocks rose at the open, then nosedived following the news of tensions in the Middle East. But it was lately recovering. The

Philadelphia Stock Exchange Semiconductor Index

was up 1.8%.

Almost every stock in the index was trading higher.

No thanks to AMD. Despite reporting earnings which beat estimates last night, the stock was falling on the negative analyst comments.

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Bonds/Economy

Treasuries, under pressure early in the session as stock futures rallied, have recouped those losses and moved into positive territory following reports of escalating violence in the Middle East.

Bond and note prices starting moving sharply off their lows shortly after 9 a.m., when news services started reporting that Israeli helicopter gunships were firing on the West Bank and that Palestinian President Yasir Arafat's headquarters in Gaza had been attacked. Arafat was reportedly unhurt.

As the world's safest and most liquid asset,

Treasury securities typically rally in response to reports of international strife. Short-maturity Treasuries, which are the most liquid, are rallying the most.

The bond rally is occurring in spite of the fact that oil prices are spiking in response to the news. Because they are potentially inflationary, rising oil prices normally cause alarm in the bond market. Today, demand for safety and liquidity is trumping oil in the setting of bond prices.

The benchmark 10-year

Treasury note, down as much as 9/32 earlier, lately was up 31/32 at 100 12/32, yielding 5.699%.

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