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On a day marked by solemn observances that delayed the opening of trading, Wall Street struggled to get back to business.

At the onset of trading, shares rallied sharply but peaked shortly thereafter, as recent enthusiasm met with a less-than-enthusiastic beige book report.

"District reports suggest that the growth of economic activity has slowed in recent weeks. ...

and most districts indicated slow and uneven economic growth," the

Federal Reserve

reported in its summary of conditions in each of the 12 regional Fed districts.

After trading as high as 8726.90 shortly after the report was released at 12 p.m. EDT, the

Dow Jones Industrial Average

weakened notably thereafter, then stabilized before rolling over in the final hour of trading. The index closed down 0.2% to 8581.17.

Other major averages posted similar patterns. The

S&P 500

closed down fractionally to 909.45 vs. its midday high of 924.02 and the

Nasdaq Composite Index

slid 0.3% to 1315.49 after trading as high as 1347.27.

Color Me Blue


beige book report noted retail sales were "generally mixed," manufacturing activity was "sluggish," and most districts reported "little or no gain in employment in July and August."

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Additionally, the Fed noted drought conditions have been "adversely affecting crops and livestock" on the West and East coasts, while almost all districts reported "concern about the rising cost of health insurance."

More positively, "nearly all districts reported strong residential sales and construction activity," although commercial real estate markets "remained weak," according to the Beige Book. Also, "Almost all districts reported an increase in auto sales over 2001 levels, mostly due to the aggressive financing and rebate incentives."

In other words, the beige book confirmed what has been evident for some time: The bulk of the U.S. economy is struggling, save for housing and autos.

The bland beige book puts even greater pressure on Fed Chairman Alan Greenspan, who is scheduled to appear before Congress tomorrow.

With Sept. 11 commemorations receding, "The focus will return to the prospects for the economy and on Greenspan's comments," observed Phil Erlanger of

Erlanger's Squeeze Play

, a financial newsletter. "He is in a tough spot -- lowering rates would be a continued statement of weakness on the economy

but raising rates would choke off the only strength the economy has," namely spending by consumers "enticed by lower borrowing costs."

Arthur Micheletti, chief economist and investment strategist at Bailard Biehl & Kaiser in Los Angeles, offered a slightly different take on the box the chairman is in.

"He's really got to do whatever it takes to keep bond yields down

because the economy is very dependent on the housing sector," Micheletti said.

(More evidence of the housing market's robustness came today from the Mortgage Bankers Association, whose weekly index of applications for mortgage refinancing increased to a record 6,104.3 last week. That record occurred even as the rate of average 30-year fixed mortgages rose to 6.10% last week from the prior week's record low of 5.99%.)

"It may be

that doing nothing keeps bond yields down," he continued, suggesting another rate cut might compel some to conclude "that's the last of it" and bond yields might rise.

Today, the price of the benchmark 10-year Treasury note fell 17/32 to 102 18/32, its yield rising to 4.06%.

Through the Rallying Glass

The market's mini-rally began last Thursday evening when


(INTC) - Get Intel Corporation (INTC) Report

midquarter guidance proved less downbeat than feared and Friday's employment report was better than expected. At today's intraday highs, the Dow and S&P each were up more than 5% from their Sept. 5 closes, while the Comp was up 7.7%.

On a closing basis, the Philadelphia Stock Exchange Semiconductor Index is up 9.6% since Sept. 5, after gaining 1.1% today amid modest ongoing strength in Intel, and chip-equipment makers such as

Applied Materials

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(NVDA) - Get NVIDIA Corporation Report

rose 5.9% -- a second day of big gains -- after Credit Suisse First Boston said it expects

Taiwan Semiconductor

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to increase shipments of Nvidia's next-generation graphics chips.

To skeptics, the SOX's recent advance represents the height of speculative madness. Today,


reported that Taiwan Semiconductor, the world's largest supplier of made-to-order chips, has been asked by some clients to delay delivery on orders. That report is a chilling indication of the true fundamentals in the chip sector, say bears, and suggests the recent rally is not sustainable.

In some regard, the same could be said of the market's broader rally.

"I don't think it's a time to panic-sell but

I'm not for jumping in and buying" either, said Micheletti, whose firm oversees nearly $500 million in equities. "Stocks still aren't cheap. You could possibly argue they're fairly valued but they're not cheap."

Bailard, Biehl & Kaiser currently has a targeted asset allocation of 24% global bonds, 46% U.S. stocks, 10% international equities and 20% real estate. "We think you definitely want to be diversified," Micheletti said. "We try to make sure our clients have competitive returns on the upside but are protected on the downside."

A composite index of the firm's separately managed accounts was down less than 5% for the year ended June, he said. The S&P 500 was down nearly 20% in the same time frame.

In addition to the valuation issue, the strategist observed the likely possibility of war with Iraq -- for which President Bush is expected to press the case at the U.N. tomorrow -- and the market's vulnerability to another terrorist attack, or rumor thereof.

That was evident today as today's afternoon slide coincided with reports a

Northwest Airlines


flight en route to Memphis, Tenn., was diverted to Arkansas due to some unruly passengers. More troubling were reports an

American Airlines


flight destined for Dallas returned to Houston shortly after takeoff due to what the airlines' spokesman called "a security incident" on board.

There were no physical injuries in either case, according to


, but the psychological effect was real.

"We're maybe talking five years or longer where markets go sideways in a volatile pattern," Micheletti said. "Within that, you'll have big moves on the upside and downside

but I wouldn't be too confident about predicting a new bull market. It's unlikely we're going to rip to the upside, and it'll take time for the market's memory to fade."

He was talking about the memory of the bubble and its aftermath. But on this day of remembrance, the stock market was very much a secondary consideration.

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.