Gulf War Ghosts Make Things Spooky on Wall St.

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Earnings worries, euro worries, Greenspan worries — they've been dragging the Dow and NADSAQ down, session by session, doldrum by doldrum, for weeks. But throw in some Gulf War flashbacks, and you've got a real live selloff.

The Dow plunged 379 points Thursday on one word: oil. (OK, oil and Home Depot's earnings report, but let's not split hairs.) With U.S. sailors dead in a likely terrorist attack on a Navy ship in the Persian Gulf and Israel bombing Palestinian headquarters in retaliation for a Palestinian lynching of Israeli soldiers (and with Iraq threatening to suspend crude production in some wacky euro-support blackmail scheme and Venezuela mired in oil-labor troubles) there was only one commodity scarcer than confidence Thursday, and that was black gold.

So much for the Strategic Petroleum Reserve. Those oil-price reductions were wiped out as November crude touched $37 (right near the September 10-year high) during the session and settled at $35.50 a barrel, and heating oil prices have hit new highs again. So much for the NASDAQ's signs of life Wednesday afternoon; the tech index started the day up but got swept into a 93-point slide as visions of the '70s danced in investor's heads.

Higher oil prices mean higher energy costs, which mean higher manufacturing, shipping, and transportation costs — which could mean inflation. Higher oil prices also mean higher prices at the pump, which tends to act like a consumption tax on consumers (this is where Home Depot fits in, which could mean stagnation. And in Europe, higher oil prices have about twice the dampening effect — and that means lower sales for U.S. companies. Stagnation again.

And never underestimate the power of a few explosions. Investors have been worrying quietly about oil for months, but corporate earnings — related to oil, but which incorporate a larger set of worries — have been at center stage. But when rockets flew, this wasn't a solely economic headache. This had the whiff of war, spurring a particular kind of panic-selling analysts said they hadn't seen since Saddam stormed Kuwait.

Time to buy? Sure, there's talk of a floor — the Dow and NASDAQ are both back to milestones they last saw in 1999. Friday's session, in fact, began with some bargain-hunting, even in the face of a report that the inflation-harbinger Producer Price Index jumped 0.9 percent in September, double expectations. But when your hoped-for floor depends ene in part on the shifting sands of Middle East tensions, it's hard to picture a sustained, multi-session rally starting anytime soon.

Unless you're in oil stocks.