Iraq Looms Large on Wall Street
Sunday February 9, 10:19 am ET
By Herbert Lash
NEW YORK (Reuters) - Iraq looms large on Wall Street this week as the threat of war builds and investors try to see signs of an improving economy and company profits.
Corporate outlooks have been wary at best, and there has been little economic data to provide stock strategists or company chieftains enough to say the economy is fully on the mend.
Even strong economic data, such as a government report on Friday that showed U.S. payrolls surged at the fastest rate in more than two years in January, is unlikely to change the sour mood. The report sparked a rally that barely lasted half an hour.
With the United States increasing the pressure on Iraqi President Saddam Hussein to cooperate with the United Nations over banned weapons, the march to a showdown with Iraq will dominate the market next week, analysts said.
U.N. weapons inspectors Hans Blix and Mohamed ElBaradei are due to report to the Security Council next Friday on Iraq's weapons of mass destruction programs after their trip to Baghdad this weekend.
"It will continue for two weeks as the various scenarios play out, as the inspectors return to Baghdad, and then report back to the Security Council, said Al Kugel, senior investment strategist at Stein Roe Investment Counsel. "At that point, unless Iraq starts to cooperate, we will be moving to a campaign at the end of the month.
"So this will be weighing on stocks going forward, at least until there's a clear indication that it's a quick war and then the market will probably take off," Kugel said.
Stocks fell for the fourth straight week in a row, sending the broad market gauges to lows last seen in October. The blue-chip Dow Jones industrial average (CBOT:^DJI - News) is now down more than 11 percent since a short-lived New Year's rally peaked on Jan. 14, and is off almost 6 percent for the year.
For the week, the Dow fell 2.4 percent to 7,864.23; the broad Standard & Poor's 500 Index (^GSPC - News) lost 3 percent, falling to 829.69; and the technology-loaded Nasdaq Composite Index (NasdaqSC:^IXIC - News) slid 2.9 percent to 1,282.47.
Among economic data to be released this week, investors will be looking at weekly jobless claims and industrial capacity on Thursday, and a University of Michigan poll on consumer confidence on Friday.
Industrial capacity in January is expected to have risen to 75.6 percent, up two-tenths of a percentage point from the previous month, according to economists polled by Reuters.
For the week ended on Saturday, jobless claims are expected to have fallen by 2,000 to 389,000, while the University of Michigan's poll is expected to show a preliminary read on consumer sentiment in February declined to 81.2 percent from 82.4 percent.
In the absence of any unlikely surprises, a trader's market marked by high stock volatility is expected to prevail.
"We're in a volatile environment and the market is pre-programmed that whenever there's a rally, people will take profits," said Brian Belski, chief market strategist at U.S. Bancorp Piper Jaffray. "We're very short-term oriented and until we take care of some of the longer-term questions like war and earnings guidance, we'll be in this choppy environment."
Companies have provided hazy outlooks for the year, citing Iraq and the uncertainty it poses for the economy and corporate planning. Among the companies to report earnings this week are Applied Materials Inc. (NasdaqNM:AMAT - News) on Tuesday, Coca Cola Co. (NYSE:KO - News), Viacom Inc. (NYSE:VIA - News) and News Corp. (NYSE:NWS - News) on Wednesday and Dell Computer Corp. (NasdaqNM:DELL - News) on Thursday.
Applied Materials, the world's largest maker of microchip production equipment, warned last week that quarterly orders would miss expectations by $234 million because chip makers have reined in spending due to war jitters and the economy.
Dell said on Thursday that corporate spending on technology will be soft this year, citing the same reasons.
The dour news overhanging the market has pushed the slide in stock prices, and the break-up of the space shuttle Columbia just added to the pessimism, said Philip Dow, director of equity strategy at brokerage RBC Dain Rauscher.
"The public isn't positive, they're voting with their feet and selling mutual funds. Businesses aren't positive. There's a huge negative feeling out there that things aren't getting better," Dow said. "The shuttle was the icing on the cake."
But at some point the market will turn up, and being positioned for that turn is key as the upside can be quick, he said. Of 14 major bear markets going back to 1926, there's been on average a 29 percent rally once they've hit bottom.
"There's lots of uncertainty but almost always the market recovers. I don't expect people to be optimists considering the news we've had, but I'm not certain the sky's falling," Dow said.
biz.yahoo.com |
