Charles Schwab & Co., Inc.

       Morning Market View(TM) for Tuesday, September 4, 2001
                       as of 9:30AM EDT
 Information provided by Schwab Center for Investment Research 

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MERGER MANIA

The extended vacation weekend appears to have recharged the 
competitive batteries in both the technology and energy sectors 
as several companies headed down the acquisition trail this 
morning. Equity index futures hinted at a negative open for 
stocks, extending the downside bias from Europe, despite some 
early enthusiasm following Hewlett Packard's (HWP,23) bid for 
Compaq Computer (CPQ,12.35,f4).

Computer giant Hewlett-Packard has agreed to purchase rival 
Compaq Computer in a deal worth $25 billion in stock, as both 
companies look to enhance their competitiveness in an industry 
plagued by languishing sales and an ongoing price war. 
Hewlett-Packard will own 64% of the combined company with Compaq 
owning the remaining 36%. The announcement could put pressure on 
computer titans Dell (DELL,21,f1) and International Business 
Machines (IBM,100,f2), and the pricing war is likely to extend 
to computer services and network storage.

Oklahoma-based Devon Energy Corp. (DVN,46,f2) has made an offer 
to purchase Canadian energy company Anderson Exploration Ltd. 
(AXN,17.07) for $3.4 billion, plus the assumption of $1.2 
billion in debt, in a deal that would make the company the 
largest among independent North American exploration and 
production companies. The move comes just three weeks after 
Devon announced its acquisition of Mitchell Energy Corp. 
(MND,57) for $3.1 billion.

In other energy news, Santa Fe International (SDC,25) agreed to 
acquire adversary Global Marine (GLM,14.40,f2) for approximately 
$3 billion in stock, plus the assumption of $900 million in 
debt, creating the world's second biggest offshore oil and 
natural gas driller.

Chip stocks could see some volatile trading action today after 
the Semiconductor Industry Association reported that worldwide 
semiconductor sales in July fell 37.2% from the year-ago period 
to $10.86 billion. Sales were down 6.1% from June, but the 
agency's President said that he anticipated an end to the 
inventory correction in 3Q, with sequential growth beginning in 
4Q.

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TREASURY AND ECONOMIC SUMMARY 

Bonds were fairly active in front of this morning's National 
Association of Purchasing Managers' survey scheduled for a 10:00 
a.m. EDT release. A Dow Jones Newswires forecast is looking for 
the index to move up to 44 from July's 43.6 reading, reflecting 
a slight deceleration in contraction in the manufacturing 
sector. The upward bias comes on the heels of last Friday's 
Chicago Purchasing Managers' Index, which showed a regional 
slowdown in the pace of contraction in manufacturing.

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WORLD MARKETS 

Hewlett Packard's announced bid for Compaq sent stocks soaring 
overseas early, but gains were reversed with the Bloomberg 
European 500 Index down 0.33% as of 8:55 a.m. EDT. Early gains 
were tempered a bit by Ericsson's (ERICY,4.98,f1) warning that 
it sees no imminent recovery in the market for 
telecommunications products next year. Adding fuel to the fire 
in the beleaguered industry, both Marconi's (MONI,1.68,f1) CEO 
and chairman stepped down as the company said that it would post 
a first-half operating loss, due to substantial writedowns for 
inventory and recent acquisitions. The company had previously 
expected a breakeven first-half. The euro was lower against the 
U.S. dollar after failing to extend its recent uptrend, amid 
some sanguine economic data in the U.S. last week.

Technology shares led Asian markets higher, with Japan's Nikkei 
closing up 3.49%. The yen was lower against the dollar as 
rhetoric about FOREX intervention to cap any unwarranted 
strength in the Japanese currency continued. Japan's prime 
minister gave banking stocks a boost after confirming that the 
worst of non-performing loans would be written off the books 
within two to three years.

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FUTURES WATCH 

In the September Globex futures contract as of 8:55 a.m. EDT, 
the S&P 500 Index was down 1 point, while the Nasdaq 100 Index 
was down 4.5 points (4 points below fair value). The September 
DJIA futures contract was down 30 points (6 points below fair 
value), and the October crude oil futures traded on the NYMEX 
were down $0.06 at $27.14/barrel.

William Johnson, Market Analyst

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