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The Starting Line: Market retreat not as bad as it seems?

The most surprising thing about post-terrorist Wall Street might be how unsurprising the activity has been so far.

The most surprising thing about post-terrorist Wall Street might be how unsurprising the activity has been so far.

The Standard & Poor's 500 index and Dow Jones industrial average lost 7 percent and 8.8 percent, respectively, in the three trading sessions since U.S. stock markets reopened after last week's terror strikes.

Although that market sell-off has rattled investors and their portfolios, things have been relatively orderly and predictable with the stocks most directly affected by the terrorist attacks taking most of the declines, analysts said. So far, the stock markets are following historical patterns after a catastrophe.

Indeed, some analysts are holding out hope that the recent market declines will form a bottom and indicate better times ahead. "Many of the conditions that coincide with a market bottom are developing," said Jeff DeGraaf, a technical analyst with Lehman Brothers, adding that Wednesday's late-session buying is an "early indication (of) the tactical trading rally we anticipate developing in the next two to three weeks."

Some news reports would have you believe that the declines signal widespread fear of the unknown. A Reuters article from Wednesday summed up the belief: "The uncertainties of a new economic and geopolitical age brought on by last week's air attacks on America added to worries."

Uncertainty? Hardly. Wall Street couldn't have been more certain of itself.

Sectors most obviously hurt by the World Trade Center's destruction--insurance, certain financial services, aerospace, airline and travel--took severe hits. And capital poured into sectors that would seem to gain from work needed to rebuild lower Manhattan's infrastructure.

Three of the top six decliners so far this week on the Dow Jones industrial average--United Technologies, General Electric and Honeywell--build aircraft engines. The fourth-biggest drop on the Dow slammed a financial bellwether, American Express. Number five on the Dow slide is the giant of the jet industry, Boeing.

Meanwhile, SBC Communications and AT&T, expected to benefit as communications networks are restored in New York City, were the top two gainers in the Dow. Wireless, communication services, telecom equipment and computer services--in that order--have been this week's best performers among CNET's 19 sector indexes.

Indeed, the market declines have been painful, but they have been predictable. The big question is whether the markets will remain that way.

Investors pointed to the dramatic use of communications networks last week as proof of the growing use and demand for those services now. Yet Dresdner Kleinwort Wasserstein analyst Ariane Mahler believes the increase may be ephemeral.

"We expect carriers to view the recent surge in Internet traffic as a temporary phenomenon, although one to watch closely in a war-type scenario," Mahler said earlier this week. "Investment in redundant communications systems and backbone capacity may benefit Cisco, Nortel and Ciena, (but) in the short term, we expect demand for broadband services such as DSL (digital subscriber line) to fall short of earlier expectations, consistent with an anticipated drop in consumer spending. This may postpone the need for further investment in the backbone."

The attacks could even make an already bad situation worse for network equipment makers, said SG Cowen Securities analyst Christin Armacost. Economists and tech industry watchers have been saying that the attack will hurt near-term sales in industries where sales are generally closed near the end of a quarter, and networking companies usually generate up to half of their September quarter sales in the last month, Armacost said.

"A slowdown was already underway in the sector," Armacost wrote in a research note. "We expect that the tragic events of past week will simply bring this trend to a head sooner."

Some observers suggested wireless handset makers will see more sales because of the many attack-related stories involving cell phones. CNET's wireless index has more than doubled in value this week.

However, the highly visible role played by wireless technology in relaying news of hijackings doesn't change the basic fact that market research data indicates the wireless market is maturing in some industrialized countries, especially in Europe.

"We believe the impact to the wireless equipment group with respect to additional or lost business resulting from Tuesday's events will be minimal," Salomon Smith Barney analyst T.C. Robillard said. "Therefore, this group will continue to trade based on industry-specific fundamentals."

Wireless investors' attention should be focused not on terrorist activity, Robillard said, but on the industry's long-anticipated shift to the next-generation 3G standard for wireless transmissions--largely a European story. Even if fearful U.S. residents buy more wireless phones, it might not make much of a difference; the United States makes up no more than 15 percent of the overall handset market, Robillard estimates.

Tech sectors generally won't be hurt by last week's events, and some tech companies obviously will get revenue from the repair of the Pentagon and New York's financial district. But a significant boost isn't likely either. Except for defense and some small niches, the attacks didn't change the broad issues confronting technology and communications industries.