In a note issued this morning, Canaccord Capital Corp. is asking clients to join the firm in a moment of prayer for those affected by the destruction of the World Trade Center.

The note, signed by Canaccord research vice presidents Jim Muir and Graeme Currie, proceeds to give analyst Michael Manford’s analysis of the impact of the attack.

“The immediate reaction to an event such as this will largely be dictated by psychology and, therefore, difficult to anticipate,” observes Manford.

“While the tragic event of yesterday likely constitutes the largest disaster ever to hit the U.S., the economy is large enough to take it without a major collapse. The resilience of the U.S. economy and the resolve of the American people following such a tragedy could easily be underestimated, but should not,” Manford says.

Manford points to several recent events as models, such as the Los Angeles earthquake, Hurricane Andrew, even the Kobe earthquake in Japan. The general pattern in these sorts of events is that the area in question is seriously impacted for the first two weeks to a month, says Manford. “While we still do not know the extent of the damage to New York’s infrastructure, and may not until next week, we expect that from the economy’s standpoint, things will largely be back to a semblance of normalcy within a few weeks,” he notes.

He estimates that overall U.S. retail sales will be hurt by less than 0.2% in the short run and that the cost of the cleanup effort will quite soon offset the loss in retail sales. He adds that rebuilding efforts should boost capital spending in early 2002.

The tricky issue, Manford says, is whether the U.S. consumer will be shaken enough by the attack to slow spending. However, he believes that recent U.S. tax cuts will outweigh the impact of the New York and Washington tragedies. Therefore Canaccord is, “not changing our expectation for 2.25-2.5% real growth in consumer spending in the second half of the year.”

Manford predicts that the U.S. dollar will likely remain weak in the short run, that gold may well enjoy a boost, and that fixed income markets are likely to improve. As for stocks, the reaction could be less positive. “Equity markets are likely to overreact to this attack. The markets were already shaken and the likelihood is that this tragedy may well drive us to a climactic sell off.”

But in the long run, he expects stocks to improve. “Once the sell off has stabilized, we would expect the subsequent upturn to be led by the leaders with liquidity that the markets typically look to when positions are being rapidly reallocated,” Manford observes.

He notes that investors will likely focus first on cyclical stocks such as mines, steels, rail transportation, and shipping.