M A R K E T .. S N A P S H O T -- U.S. futures point to weak open
European markets under pressure
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 7:57 AM ET Oct 8, 2001
NEW YORK (CBS.MW) -- Stock futures declined significantly Monday -- pointing to a sharply lower open for the U.S. averages -- as investors reacted to the start of U.S. air strikes on targets in Afghanistan Sunday and the uncertain effects that the new war will unleash.
The December S&P 500 contract fell 12.90 points, or 1.2 percent, and was trading about 15.20 points below fair value, according to figures provided by HL Camp & Co. And Nasdaq futures slid 24.50 points, or 1.9 percent.
"Emotional responses will differ from what we all coolly anticipated as television pictures of night time bomber attacks segue into pictures of damage and casualties," commented Carl Weinberg, chief economist at High Frequency Economics. "Seekers of safe haven may prefer bonds to equities."
The Treasury market will be closed Monday in observance of Columbus Day. Prices ended marginally lower on Friday in a shortened session.
"The markets always have nervousness when something like this occurs because it represents a measure of uncertainty," said Irwin Kellner, chief economist for MarketWatch.com and the Weller professor of economics at Hofstra University in New York.
European stocks fell but remained well off their session lows. In Germany, the Dax 30 fell 1.7 percent while London's FTSE 100 slumped 1.3 percent. And France's CAC 40 erased 1.7 percent.
In Asia, Hong Kong's Hang Seng Index dropped just over 3 percent while Japanese markets were closed for a public holiday.
The dollar lost some traction, falling 0.5 percent to 119.74 yen while the euro gained 0.2 percent to 92.10 cents. Crude prices rose and oil stocks traded lower in Europe.
"If the dollar takes an initial downward jolt after these attacks, it may go far enough to stake out some important technical milestones," Weinberg noted.
Sector action
Shares of U.S. defense companies rose in European trading as investors shifted their portfolios to wartime footing.
And U.S. defense stocks General Dynamics (GD), Raytheon Co. (RTN) and Northrop Grumman Corp. (NOC) all rose in Germany.
Gold and oil stocks may also gain traction once trading commences in the U.S. Crude prices rallied in London.
Among tech stocks seeing activity, Cisco Systems (CSCO) -- which dazzled investors last week with a 22.7-percent gain -- slipped 39 cents to $14.55 in Instinet pre-market action. And the triple "Q's"(QQQ), the Nasdaq 100's tracking stock, shaved 61 cents to $31.15.
Desert Storm comparison
Many strategists turned to the example of the Gulf War in January 1991, when Operation Desert Storm began, to try to determine what the market's reaction might be. While acknowledging the acute differences between the current situation and the Persian Gulf crisis a decade ago, the massive positive reaction in the stock market to the initial air strikes in the Gulf War is worth noting, they said.
When the U.S.-led coalition launched its attack to oust Iraq from Kuwait in 1991, the Dow Industrials ($DJ) jumped 4.6 percent on the first day of trading. It rose nearly another 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 health-care 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.
The week ahead
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. .
No economic data is due out Monday. The week's highlights include 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. and check economic calendar and forecasts. |
