SAN FRANCISCO -- For anyone who grew up during the Cold War, the TV broadcasts of a Republican U.S. president being buddy-buddy with a Russian leader, replete with adoring cheers for the latter from an audience of Texans, is a bizarre sight. But given developments with oil prices -- as well as those in the war on terrorism and issues with China -- today's love-in between presidents Bush and Putin made sense from a geopolitical point of view.

These are unique times, but those cheering Texans might soon rethink their enthusiasm. As Putin's Russia squared off against OPEC in a burgeoning price war, crude prices fell 11.6% to $17.45 per barrel today, a decline that rippled across almost all financial markets.

Treasury securities prices dropped sharply, sending yields to their highest levels since Oct. 30 for the 30-year bond and since Sept. 25 for the five-year note. Other factors certainly contributed to the bond market's setback, including a massive


(T) - Get Report

corporate bond issue, retail investors moving money back into equities, and a sense that much of the long bond's rally after the Halloween announcement of its demise was technical in nature.

But fixed-income participants also eyed the economic implications of the big decline in oil prices.

Should crude prices fall into a new band of $18 to $28 a barrel vs. OPEC's official target of $22 to $27, as Venezuelan President Hugo Chavez suggested last month, American consumers would reap over $100 billion in savings this winter vs. last. That's according to Tobias Levkovich, senior institutional U.S. equity market strategist at Salomon Smith Barney, who also included recent declines in natural gas and electricity prices in his analysis.

Noting the sensitivity of Persian Gulf economies to lower oil prices amid rising anti-U.S. sentiment in the Arab world, Salomon's Levkovich cautioned that "many OPEC nations need to find that delicate balance between supporting the Western economies and sustaining themselves."

Should the tide in oil prices turn higher, "we could add another risk to the 'wall of worry' that already exists for the economy, earnings and the equity markets," he wrote.

But for now, most investors are focusing on the positive implications of oil's tumble.

The irony is that OPEC is even considering production cuts only because it fears slackening demand due to global economic weakness. This concern is underscored by the IMF's slashing of global economic growth targets for next year, including a lowering to 0.7% from 2.2% for the U.S. But though the drop in oil prices has further disinflationary implications, fixed-income participants are thinking the

Federal Reserve

may be less inclined to ease going forward. Recent signs of U.S. economic improvement -- including today's jobless claims data -- also are contributing to that view.

The price of the benchmark 10-year Treasury fell 1 25/32, to 101 27/32, its yield rising to 4.76%.

Lower oil prices and the possibility of economic recovery aided consumer cyclical stocks and transports; the Dow Jones Industrial Average Transportation Index rose 2.6%. But oil and related stocks tumbled, keeping pressure on major averages; the Amex Oil & Gas Index lost 4.4%, and the Philadelphia Stock Exchange Oil Service Index fell 10.6%.

Given those countervailing forces, plus recent activity, it's not surprising that equity markets had a somewhat muted and uncertain session today. The

Dow Jones Industrial Average

rose 0.5%, and the

S&P 500

added 0.1%, while the

Nasdaq Composite

dipped 0.1%.

Beyond the macro issues, equities were influenced by tomorrow's options expiration, while tech stocks were restrained by last night's weaker-than-expected results from

Applied Materials

(AMAT) - Get Report

. There was also anticipation of results tonight from


(DELL) - Get Report

. (After the bell, Dell reported a 36% drop in net income vs. year-ago levels. But its earnings of 16 cents a share were a penny ahead of consensus expectations.)

Rising bond yields undercut the valuation argument some bullish market watchers have been using. But again, major averages proved resilient to any significant downside pressure.

To Ike Iossif, president of Aegean Capital Group in Chino Hills, Calif., the resilience of stocks reflects market participants' continued belief in the recovery scenario.

Citing the Economic Cycle Research Institute's weekly index of leading economic indicators, Iossif said that economic activity has "fallen off a cliff," making a V-shaped recovery "not very likely."

The ECRI's weekly index has improved in the past few weeks but similar attempts to stabilize earlier this year ultimately failed, he recalled.

Still, "we will not know for certain for another four to six weeks" whether the recent uptick is sustainable, Iossif continued. "In the meantime, market participants will continue to bet on a recovery, pushing the market higher. That is why we believe, although the market may be vulnerable

in the short term because it is highly overbought, it should hold up for another six to eight weeks, until the verdict is in with regards to the economy."

While the market manager's "intermediate-term" outlook is positive, he issued a short-term "sell" signal on the Nasdaq after the close on Tuesday. Iossif forecast a 66.38% probability the Comp's next move is to 1700 vs. a 30.11% chance of further gains to 1975. (On Oct. 21, he predicted a 40% chance of the Comp hitting 1850, which came to fruition.)

For the S&P 500, he maintains a neutral stance.


Thanks for the overwhelming reply to

last night's column. For those whose emotions were/are running high, please note that approximately six weeks remain in the year; thus, this column's hallowed Guru of the Year title remains very much in doubt, and several candidates are being seriously considered.

Finally, several readers replied to my subsequent follow-up note in the

columnist conversation with suggestions of other "gurus" who've gotten it right this year. I will attempt to catch up with them and report their views here. However one has already rebuffed my overtures, claiming that


is "the only venue we do for free."

I understand where he (among others) is coming from. I wonder if maybe I'd have better luck with some of the more reclusive gurus if I devoted as much time to that crucial Victoria's Secret story as



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.