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An Inexplicable Hitch in the Market's Gitalong

The averages suddenly went south in the last hour of Wednesday's trading for no discernible reason.

SAN FRANCISCO -- As has mainly been the case since late September, technology stocks resumed leadership of an advancing market today in the wake of positive comments from


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That is, techs were at the market's vanguard until the final hour of trading, when the major averages took a decided turn for the worse.

Once as high as 10,270.88, the

Dow Jones Industrial Average

finished off 0.6% to 10,094.09 while the

S&P 500

shed 0.5% to 1155.14 after trading as high as 1174.26. The

Nasdaq Composite Index

dropped 0.5% to 2044.89 after trading as high as 2098.88. The Philadelphia Stock Exchange Semiconductor Index rose 0.5% to 584.27 but closed well off its intraday best of 606.88.

Myriad theories were offered for why the market turned tail, including reports of a U.S. refueling plane crashing in Afghanistan and rising concerns about possible military action against Iraq. One source suggested there was a "sell the news" reaction to Dallas Fed President Robert McTeer's comments about the economy. "We are in the process of forming a bottom," McTeer said, implying confirmation of what investors have been betting on -- that the worst is over.

McTeer also said the Fed would have been happier to have seen its 11 rate cuts in 2001 have more of an effect on the economy, although "they have done a lot of good."

Such developments aside, it may simply have been a case of the averages hitting resistance as they moved above their post-September highs, which triggered "huge sell programs," according to one trader.

As my colleague Justin Lahart noted in's

TheStreet Recommends

Columnist Conversation, today proved to be a so-called outside day, whereby major averages post higher highs and lower lows than the prior day, with a negative close as well.

Technicians usually consider such sessions negative because they sometimes indicate an abrupt shift in investor sentiment, but that remains to be seen.

"A good scare might do the market some good

because complacency got a bit thick," quipped John Bollinger, founder of in Manhattan Beach, Calif.

Anyone for a Three-Tort?

Dueling economists lack the drama of

Hamilton vs. Burr. But that historic gunfight came to mind today after Salomon Smith Barney's Mitchell Held dropped an econometric glove at the feet of Morgan Stanley's Stephen Roach, and his

double-dip theory specifically.

"Suddenly, concern about extended economic sluggishness, perhaps a 'double-dip recession,' has begun to surface," wrote Held, who is Salomon's managing director of economic and market analysis. "But quite often, there were specific policy reasons for the 'dip' " in prior recessions. If it happens again, it will be because of the policymakers, not because of something inherent within the economic cycle, he said.

For instance, in the 1990 downturn, taxes were being raised and spending was being restrained, but in July 1980, fed funds bottomed and proceeded to rise by more than 1000 basis points in the ensuing six months, Held recalled. Interest rates also rose in the middle of the 1973-75 recession, turning "what would have been a fairly modest recession into something rather steep."

Never mind that 1990 was Roach's exception to the double-dip pattern; Held contends that policy decisions were largely responsible for previous cycles of a brisk recovery for a quarter or two after a recession, followed by a relapse into negative GDP.

"The point we're making is the policy levers are set at the moment to positive growth," Held said in a follow-up interview. "Also, it'd be nice to see one quarter of expansion before we worry about dips."

In addition to favorable monetary and fiscal policies, he argued that the dip will be avoided because corporate and consumer balance sheets have been strengthened by lower-cost debt issuance and lower mortgage rates, respectively. (The

Federal Reserve

reported yesterday that consumer borrowing grew at an annualized rate of 14.6% in November, the highest level in six years, but let's not split hairs.) Inventory reductions and lower energy costs were other factors cited.

"All of this doesn't guarantee smooth sailing but it does suggest that the prospects for double-dipping are best left at the ice cream parlor," Held wrote.

The economist forecasts 1% GDP growth in the current quarter, followed by growth of 3%, 5%, and 5.5% in the ensuing quarters this year before the economy slows to "trendline growth" of 3.5% to 4% in 2003. "There's been a lot of stimulus before and after Sept. 11 -- usually some of it sticks," he said.

Another terrorist attack, which is impossible to forecast, or aggressive tightening of monetary policy, which Held does not expect, would cause him to rethink the optimism. The economist didn't seem overly concerned over whether or not Congress passes any kind of fiscal stimulus package, noting that government spending is already on the rise.

As for Roach, Held denied his piece was necessarily a retort and said he was responding to questions from Salomon Smith Barney's retail brokers. "I can't imagine where the question

about double-dips could have come from," he said, whimsically.

Roach, whose double-dip report on Monday was itself a retort to Morgan Stanley's Richard Berner, did not return a phone call seeking comment.

Thanks to Held we now have a re-retort. Anyone for a three-tort?

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.