Iraq Looms Large for Investors
>>Could stocks revisit October's multiyear lows?
"Until we get clarification on these issues (Iraq and the economy) I think there is a big chance of doing that," Doran said.<<
Sunday January 26, 11:03 am ET
By Haitham Haddadin
NEW YORK (Reuters) - Wall Street faces an earnings flood and a Federal Reserve policy meeting this week, but investors will be on tenterhooks waiting, above all, to learn whether the United States will attack Iraq.
A key U.N. report on Iraq and President Bush's State of the Union address this week should go a long way toward clarifying the war question as well as giving insight into Washington's plan to shore up the sluggish U.S. economy.
"Iraq and the economy are the two key issues weighing on stock prices right now," said Ron Doran, director of institutional trading at C.L. King & Associates.
Could stocks revisit October's multiyear lows?
"Until we get clarification on these issues (Iraq and the economy) I think there is a big chance of doing that," Doran said.
Many blue-chip companies have already reported, but several majors are still among the hundreds handing in scorecards this week. The list includes American Express, AT&T Wireless, SBC Communications and Biogen. Other household names reporting earnings include DuPont, Kraft, Merck & Co. and Procter & Gamble.
Also due are economic data reports, such as U.S. economic growth in the last three months of 2002.
And while no one expects the U.S. central bank, which meets Tuesday and Wednesday, to slash interest rates again after the surprise easing late in 2002, eyes will be on Federal Reserve Chairman Alan Greenspan for his insights on the world's largest economy.
SUPER BOWL
Of course, the superstitious will tune in to Sunday's Super Bowl football game, not just to enjoy the action but to divine where stocks are going. This is in line with what Fortune Magazine has dubbed the "amazing predictive power of pigskin" -- the claim that one can call the market direction based on which team wins American football supremacy.
So, the theory goes, Wall Street bulls will likely be rooting for the Tampa Bay Buccaneers over the Oakland Raiders. That's because under the so-called "Super Bowl Indicator," if the trophy goes to a team that was in the old American Football League, like the Raiders, then stocks will tank that year.
"I don't attach much credence to that theory. But for real football fans it seems the consensus is for a Raiders victory," Alan Ackerman, strategist at Fahnestock & Co., warned.
On a more serious note, Ackerman and other market watchers say investors eager to assess the geopolitical risks want to hear what the nation's chief executive has to say on the burning issue of war with Iraq in his speech on Tuesday night.
The Street also awaits George W. Bush's road map for breathing life into what looks like an increasingly sluggish economy.
Worries over the flow of oil from a country sitting on the world's second-largest reserves have sent oil prices skyrocketing, raising energy costs. A war also could hit consumer confidence, prompting a cut in spending.
"People are disappointed with equity prices over the last few years. It's weighing on consumer issues, the spending issue," Doran said. "Why spend when war is overhanging, why make major decisions with no real outline on tax policy? He (Bush) will be addressing these things."
Wall Streeters will tune in on Monday when chief weapons experts Hans Blix and Mohamed ElBaradei deliver a report on whether United Nations arms inspectors have found Iraq in "material breach" of U.N. resolutions, a finding that could trigger war.
"The market is down because investors are not sure of what to expect," said Joe Stocke, portfolio manager with StoneRidge Investment Partners, which manages $500 million. "We have to see what the U.N. inspectors have to say. They may have mixed information and that will probably continue the uncertainty."
OCTOBER LOWS BECKON?
Recent declines in the market after an early January rally indicate that revisiting multiyear lows reached in October is becoming more and more possible, the pundits said.
"People are beginning to ask if this was just a rally in a bear market," Ackerman said. "Everybody is deeply nervous.
"Most people feel the market is brittle, we've given back all of the gains since the beginning of the year. What little confidence that surfaces is overwhelmed by war jitters," he told Reuters.
Dealers are unanimous that the Fed will stand pat on official interest rates at this week's meeting, but a minority expect an easing in March if signs of weak growth accumulate.
For those who foresee a shift in the Fed's statement of risks to the economy, uncertainty about war with Iraq, a stagnant job market and stingy retail spending outside of cars are the key factors.
"They will say the balance is that it still makes sense for the Fed to lean toward being accommodative to make sure the economy recovers," Stocke said. This would mean the Fed is ready to cut rates further if needed to shore up the economy.
On the data front, before the market opens on Thursday, Wall Street gets the advanced reading on fourth-quarter Gross Domestic Product (GDP), with economists expecting anemic growth of 0.9 percent in the October to December period versus a more active clip of 4 percent for the July to September quarter.
Early on Tuesday, investors get December durable goods orders. Consumer confidence data for January is due after the open. On Friday, the University of Michigan's sentiment data for January will be released.
"We will keep an eye on all of them but what will be the most important are ... surprises," Stocke said.
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