Stocks Finish Lower after Second Day of Air Strikes

News of future military actions will have a limited impact on markets, says one analyst. Wall Street will continue to focus on prospects for the economy

Blue-chip stocks finished lower while tech stocks ended near breakeven on Monday as the U.S. military began a second day of air strikes on the Taliban in Afghanistan, fueling concern that terrorists might retaliate.

After an initial bout of selling following the launch of a U.S.-led air attack on Sunday, stocks traded mixed for much of Monday's session. "The initial sell-off was just a knee-jerk reaction. Except for concern of terrorist retailiation that could disrupt businesses, I don't see how action in Afghanistan is strongly correlated with progress in the U.S. market," says Alan Hoffman, senior portfolio manager at Value Line Asset Management. Hoffman predicts volatility will continue.

The U.S. launched a second attack on Taliban targets in Afghanistan, after starting the first wave of air strikes the previous day. The Bush administration has firm support from a number of countries to overcome terrorism in the first U.S. war of the 21st century. But the public appears increasingly uneasy over the possibility of future attacks on home soil.

Meanwhile, Wall Street is heading into a terrible earnings season and consumer spending is slowing down quickly. Overall weakness in the economy should keep markets volatile as investors react to continued uncertainty over what retaliation efforts might come as a result of U.S. military actions in the Middle East.

"I think that investors are going to look for positive commentary from management on earnings," says Sam Stovall, senior sector strategist for Standard & Poor's. "As of September 11 a lot of people said they can't really guess the effect on earnings. The question is are we going to see earnings come in more like Cisco (CSCO ) and Dell (DELL ). Or will the future be closer to Sun Microsystems (SUNW ) and

Corning (GLW ), ?" Networking giant Cisco and PC maker Dell have recently said their next quarterly profit reports would meet Wall Street expectations, while Sun Micro and Corning have indicated lower-than-expected results for the quarter.

Major stock indexes had tumbled to three-year lows after the assaults on the Pentagon and the World Trade Center as fears of recession and military response from the U.S. weighed on investors. Over the past two weeks the markets erased most of those losses, with a hand from the Federal Reserve's ninth interest-rate cut this year and President Bush's promise of an economic stimulus package.

S&P's Stovall says that investors will also look to economic reports beginning at the end of October for signs that economic stimulus tactics are working. President Bush is urging Congress to pass tax relief of at least $60 billion as part of an emergency spending package in the wake of the attacks. He is asking Congress to accelerate marginal tax rate cuts, offer relief to moderate and low income workers, eliminate the alternative minimum tax for companies and allow firms to use enhanced expensing for capital expenditures.

Among stocks in the news Monday, AT&T Wireless Services Inc. (AWE ), the No. 3 U.S. wireless company, said it will buy the 77% of TeleCorp PCS it does not already own for $2.4 billion in stock, giving it full control of its largest affiliate.

Defense industry stocks were the biggest gainers on news of the U.S. air raids as many expect that increased government spending on military gear could increase profits. Meanwhile, travel and entertainment companies' shares languished amid fears of a slowdown in travel.

The Dow Jones industrial average lost 51.76 points, or 0.57%, to 9,068.01. The tech-heavy Nasdaq Composite Index gained 0.67 point, or 0.04%, to 1,605.97. The broader Standard & Poor's 500 Index fell 9.72 points, or 0.91%, to 1,061.66.

Treasury Market

U.S. Treasury markets were closed for the Columbus Day holiday.

World Markets

European markets finished mixed, after initially selling off, as U.S. stocks recovered somewhat after news that the U.S., with Great Britain, made the first strikes on Taliban targets in Afghanistan. In London, the Financial Times-Stock Exchange 100 index finished off 3.30 points, or 0.07%, to 5,032.70. Germany's DAX Index added 7.46 points, or 0.17%, to 4,495.15. In France, the CAC 40 ended 7.45 points, or 0.18%, to 4,172.21.

In Japan, markets were closed for Health/Sports Day. On Friday, the Nikkei rose 0.39 of a point to 10,205.87. Meanwhile, Hong Kong's Hang Seng lost 309.55 points, or 3.01%, to close at 9,967.83.

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