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October 12, 2000

Mideast Violence Slams the Stock Market
By Justin Lahart, The

Oil Skyrockets and Dow Gets Creamed ... Weiss comments

NEW YORK - Rising tensions in the Middle East knocked the wind out of an early morning rally on Wall Street.

In response to the killing of two soldiers, Israel launched helicopter attacks on targets near the Gaza headquarters of Palestinian President Yasser Arafat. Israel also launched attacks against the West Bank city of Ramallah.

In addition to what's happening within Israel, at least four Americans were killed when a U.S. Navy destroyer refueling in the Yemeni port of Aden was hit by a terrorist attack.

The price of oil shot higher on the news -- crude was lately up $3.95 a barrel to $37.20, just shy of its Sept. 20 high of $37.20. Stocks took the opposite tack. After being as high as 1374 this morning, the S&P; 500 was lately down 27.11, or 2%, at 1337. The Nasdaq Composite was off 41, or 1.3%, to 3127.4. The Dow Jones Industrial Average dropped more sharply, off 233 at 10,181.

Predictably, energy and oil services stocks have rallied. The Amex Oil and Gas Index was up 2.4%. The Philadelphia Stock Exchange Oil Services Index was up 4.2%.

Treasuries, under pressure earlier as stock futures rallied, were sharply off their lows shortly after 9 a.m. EDT. The 10-year was lately up 18/32 at 100 12/32, dropping the yield to 5.70%. As the world's safest and most liquid asset, Treasury securities typically rally in response to reports of international strife.

The Dow was already shaken by the latest dismal earnings warning -- this time from Home Depot. Then, another oil shock sent the Dow plunging off the cliff. We've warned you before that, with oil inventories hovering near record lows, any unexpected event could send oil prices higher than $40 a barrel.

This morning's release of import prices showed that petroleum prices have already increased 53% in one year. And, tomorrow's producer price index will certainly indicate that high oil prices are starting to impact the prices of other products. Analysts expect that the price of producing goods has risen 0.5% in September. Clearly, as company after company issues earnings warnings, the downward spiral of the stock market will continue into the next quarter.

As the price of oil soars, get ready for those disappointing earnings forecasts to multiply. And, don't be surprised when those companies who have already warned that their earnings will be bad confess that actual earnings are worse than they expected.

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