The

Nasdaq Composite Index was still struggling below the flatline following this morning's reports of renewed violence in the Middle East. The tech-heavy index kicked up its heels at the open, soaring as much as 80 points, following some good earnings news from semiconductor companies and opticals. Despite a recent comeback, it seems that the initial rally spirit may have expired.

The

Dow Jones Industrial Average, meanwhile, tried to pare back losses, but was lately down sharply again. The index first tumbled into the red on an earnings warning from home improvement retailer

Home Depot

(HD) - Get Report

, but it really began to plummet following the news from the Middle East. At about 10:20 a.m. E.D.T. the Dow was as much as 300 points below yesterday's close.

Home Depot was lately shaving about 77 points off of the blue-chip index, while brokerage

J.P. Morgan

(JPM) - Get Report

was also a big drag, gobbling up some 48 points. It was lately off 27.3%.

Following reports of an Israeli helicopter attack on the headquarters of Palestinian President Yasser Arafat this morning, 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 chance may have passed.

Optical stocks and semiconductors initially shouldered the Nasdaq's run into the green this morning after a few chip makers --

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

announced it expects to report better-than-expected earnings for the third quarter. Corning was gaining 4.4%.

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 5.1%.

PaineWebber

raised its earnings per share estimates for this year and next for Applied Micro Circuits, which was trading 2.6% higher.

At least some of the tech bigwigs were rising, including

Intel

(INTC) - Get Report

,

Microsoft

(MSFT) - Get Report

,

Oracle

TST Recommends

(ORCL) - Get Report

and

Dell

(DELL) - Get Report

.

Meanwhile, J.P. Morgan was only one of many financials that are in the sewer again today.

Lehman Brothers

(LEH)

was lately off 8.1%, and

Goldman Sachs

(GS) - Get Report

was down 6.7%. Financials may be seeing renewed selling due to a report from

Salomon Smith Barney

yesterday, which said that

Morgan Stanley Dean Witter

(MWD)

has underwritten the worst-performing junk telecommunications bonds since 1998. Morgan Stanley moved to quash rumors earlier Wednesday that it is sitting on trading losses of up to $1 billion due to bad junk bonds. Investors are worried that trading losses and bad loans will cut into sector earnings.

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Sector Watch

Some of the sectors that initially took this morning's news of violence in the Middle East badly were lately recovering, including drug and tobacco stocks. The

American Stock Exchange Pharmaceutical Index

was up 0.4%, and the

American Stock Exchange Tobacco Index

rose 0.4%.

The energy stocks were getting the obvious boost, and semiconductors didn't stay down for long.

The

American Stock Exchange Oil & Gas Index

was 2.6% higher, the

American Stock Exchange Natural Gas Index

was up 2.7% and the

Chicago Board Options Exchange Oil Index

was also up 2.7%.

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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. EDT, when news services started reporting that Israeli helicopter gunships were firing on the West Bank and that Palestinian President Yasser 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 21/32 to 100 2/32, yielding 5.740%.

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