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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (42982)	10/7/2001 8:22:21 PM
From: Dealer	Read Replies (1) \| Respond to of 65232

Markets must now deal with warfare Gold, oil, defense stocks set to rise By Julie Rannazzisi, CBS.MarketWatch.com Last Update: 6:01 PM ET Oct 7, 2001 NEW YORK (CBS.MW) -- U.S. markets will set aside concerns over profit warnings Monday as they react to the start of U.S. air strikes on targets in Afghanistan and the uncertain effects that the new war will have on consumer confidence and the global economy. Shares of defense companies are expected to rise, as are prices of oil, gold, as investors shift their portfolios to wartime footing. But strategists urged most investors to be wary about aggressive buying or selling because the next few days are certain to be volatile. They said the long-term economic impact of the war and the Sept. 11 terrorist attacks will eventually overshadow any short-term gains based on optimism from Sunday's strikes. "I should stay well out of it and see what is happening," said Justin Urquhart-Stewart of 7 Investment Management in London. "Are you really going to bet on the outcome of a war that is open-ended.'' That said, many strategists turned to the example of the Gulf War in January 1991, when "Operation Desert Storm" began, to try to determine what the market's reaction might be. While acknowledging the acute differences between the current situation and the Persian Gulf crisis a decade ago, the massive positive reaction in the stock market to the initial air strikes in the Gulf War is worth noting, they said. When the U.S. launched "Operation Desert Storm," the Dow Industrials rose 4.6 percent on the first day of trading following the attacks and rose almost 1 percent the following day. The blue-chip barometer was up nearly 25 percent a year later, according to data provided by Salomon Smith Barney. "The Persian Gulf Crisis positively impacted [market] valuation, even [in the presence of] a recessionary environment," Salomon's Philip Gainey wrote in a note to clients on Friday. "Price-to-earnings ratios increased dramatically as investors kept prices growing while earnings in 1991 fell. The psychological implication is that investors looked further out to steady-state earnings and valued the Dow relative to those earnings rather than the depressed earnings levels at the time." Gainey said he expects the market's reaction to the air strikes Sunday to be a "combination" of the reactions to the 1987 stock market crash and the 1991 Persian Gulf crisis. "Although the current situation -- coming off an overanxious market and going into a recession -- seems more closely linked to the crash of 1987, we would expect the prospects of war [to] influence equity markets in a positive manner," Gainey said on Friday. Goldman Sachs' Adam Esposito said Friday that the healthcare and financial sectors have retraced the losses suffered in the aftermath of the Sept. 11 tragedies. The communications sector also outperformed other market sectors on increased wireless usage, he noted. As the fourth quarter progresses, Esposito sees continued outperformance of healthcare and financial companies and expects to witness a rebound in the technology sector in the first quarter of 2002. Last week's action and this week's earnings highlights The Dow Industrials closed last week up 3.1 percent and was up for three trading days out of five. But the blue-chip barometer is still about 500 points from reaching the levels it was hovering around before the Sept. 11 terrorist attacks. The Nasdaq put in a spectacular week, climbing for four consecutive sessions and tacking on 7.1 percent. The tech-packed index is up 12.8 percent from its 2001 closing low reached on Sept. 21. Earnings tracker Thomson Financial/First Call said third-quarter earnings are likely to show a decline of about 22 percent. And the fourth-quarter decline is likely to be close to 20 percent. The earnings compiler said declines of that magnitude in the third and fourth quarters would match the depth of the earnings decline in the 1990-91 recession. And that was the biggest earnings decline since the 1950s. Among the companies reporting this week: First Data, Motorola, Rational Software, Lam Research, Harley Davidson, Pepsi Bottling, Yahoo, Redback Networks, Willamette, Abbott Labs, Genentech, DoubleClick, General Electric, Juniper Networks, Dow Jones, Visx, Great A&P Tea. Economic data includes the release of August wholesale trade, weekly initial claims, September import and export prices, September retail sales, the September producer price index and the Michigan consumer sentiment index. Check economic calendar and forecasts. "The coming week will shed more light on the degree to which the U.S. economy has been transformed in the past month. Prepare for another high number -- around 500,000 -- in jobless claims filings. And anticipate a sizable decline in retail sales as consumers retrenched in the immediate aftermath of Sept. 11," commented Lynn Reaser, chief economist and senior market strategist at Banc of America Capital Management.