Pullback on Wall St.

October 8, 2001 Posted: 2038 GMT

By Staff Writer Jake Ulick

NEW YORK (CNNmoney) -- U.S. stocks edged lower Monday after retaliatory strikes against Afghani targets raised worries about the length of a war and the prospect of more terrorism.

The second day of U.S.-led missile attacks was widely expected. And the market finished well off the session's worst levels.

But analysts warned that investors, already hit by plummeting corporate profits, face more uncertainty in what could be a difficult war against an illusive enemy.

"How many more attacks? When's the next terrorist activity?" Brian Belski, market strategist at U.S. Bancorp Piper Jaffray, asked on CNNfn.

Defense stocks rose. But financial and industrial stocks fell as money fled economically sensitive companies.

"I don't think with all the uncertainty investors are going to come in full force, but they are starting to nibble again," Nick Angilletta, head of retail sales at Salomon Smith Barney, told CNNfn.

Stocks, which fell sharply following the Sept. 11 attacks on the United States, advanced during the last two weeks. But the market this month faces a dismal batch of third-quarter profit reports.

The Dow Jones industrial average shed 51.76 points to 9,068.01, while the Nasdaq composite index gained 0.65 point to 1,605.95. The Standard & Poor's 500 index slid 8.94 to 1,062.44.

More stocks fell than rose. On the New York Stock Exchange, decliners topped advancers 1,8949 to 1,174 as 964 million shares changed hands. Nasdaq losers beat winners 1,982 to 1,517 as 1.4 billion shares traded.

Investors could not run for the relative safety of government securities. The Treasury bond market was closed for the Columbus Day holiday in the United States. In the currency market, the dollar edged lower against the yen and euro.

Striking Afghanistan

A second round of attacks got under way Monday, one day after the United States and Britain launched strikes against terrorist suspect Osama bin Laden's network of military camps.

In a videotaped message released Sunday, bin Laden raised the possibility of more terror, saying "America will not live in peace" unless its changes its policies toward the Islamic world.

Economically sensitive stocks fell, including 3M (MMM: down $1.29 to $98.45, Research, Estimates), Caterpillar (CAT: down $1.61 to $46.64, Research, Estimates) and  American Express (AXP: down $0.35 to $27.44, Research, Estimates).

In the latest disappointment, Ingersoll-Rand (IR: down $0.50 to $35.92, Research, Estimates) said its third-quarter profit should come in at the low end of estimates. U.S. Bancorp (USB: down $1.56 to $16.88, Research, Estimates) tumbled for another session following a warning that its third-quarter profit will fall short of analysts' expectations.

The hijacked planes that destroyed the World Trade Center and part of the Pentagon disrupted travel and spending enough to hurt a wide swath of business.

Hundreds of companies warned of financial shortfalls since the attacks, which killed more than 5,000 people and made many fear for their safety.

"It's harder to find the enemy in this kind of war," Robert Robbins, chief investment strategist at SunTrust Robinson Humphrey, told CNNfn.  "There's the fear of terrorist counter-attacks."

The session saw several gainers.  Winners included defense stocks Lockheed-Martin (LMT: up $1.38 to $49.11, Research, Estimates), General Dynamics (GD: up $2.39 to $94.99, Research, Estimates),and Northrop Grumman (NOC: up $0.10 to $107.60, Research, Estimates).

The day's losses follow a strong week, when the Nasdaq jumped 7 percent and the Dow gained 3 percent.

Historically, war-related selloffs have been short-lived. And the market has made big strides from September's worst levels. After falling more than 1,000 points since the attack, the Dow industrials have recouped more than half those losses.

Still, dismal profit reports are expected in the weeks ahead when companies start announcing results for the third quarter. Analysts surveyed by First Call expect that profits at America's largest companies fell by 21 percent, on average, in the July-September quarter.

Motorola, Yahoo! and General Electric are among the larger companies reporting results this week.

Bulls have found reason for optimism. The Federal Reserve cut interest rates nine times this year, with the last two cuts coming after the Sept. 11 attacks. And the government has proposed billions of dollars in bailouts and stimulus packages to shore up the economy.

Upbeat forecasts from Dell Computer and Cisco Systems last week also supported the market.

But few analysts expect sustained gains until more companies across many industries say demand for their products and services is improving.

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