As world waits for war, market melts
Commentary: Lightning war theories not attracting buyers
By David Callaway, CBS.MarketWatch.com
Last Update: 12:01 AM ET Feb. 27, 2003
SAN FRANCISCO (CBS.MW) -- So if everybody is expecting such a huge stock market rally once the war starts, how come nobody is buying now?
The war is much more of a sure thing today then it was six weeks ago, when Hans Blix was still arguing for more time and the Dow Jones Industrial Average ($INDU: news, chart, profile), the Nasdaq ($COMPQ: news, chart, profile) and the S&P 500 ($SPX: news, chart, profile) peaked for the year to date.
But even with almost 200,000 troops poised to invade and some intelligence analysts saying the initial attack could come as soon as this weekend See Thom Calandra's Stockwatch, stocks continue to slip, day by tortuous day.
The Dow is off more than 1,000 points since Jan. 14. The Nasdaq's down almost 160, and the S&P more than 100. Each has sunk between 10 and 12 percent from their short-term peaks. October's lows are approaching and trading volumes have evaporated.
Shares in Charles Schwab & Co. (SCH: news, chart, profile), Ameritrade (AMTD: news, chart, profile) and E-Trade (ET: news, chart, profile) all fell Wednesday on a report by investment bank Putnam Lovell saying that February online trades will be down 20 percent to 25 percent from January. Meanwhile, crude oil futures touched $38 a barrel, their highest levels since Gulf War I.
Isn't anyone willing to bet on the prospect of this "lightning" quick war that the administration and the media are hyping? Just like happened last time? Doesn't look like it. At least not yet.
The fact is that after months of hand wringing, debating and in many cases protesting an invasion of Iraq, the U.S. economy, the consumer and the investor have all just stopped in their tracks, wearily awaiting the inevitable. Consumer confidence is at a 9-year low, suggesting heightened fear of terrorism. Companies are stalling on business expenditure decisions, and investors are selling stocks.
Arguments that the market will take off once the uncertainty of war has been removed seem sound and logical, especially given what happened last time. But nobody is acting on them. Could it be that despite our immense superiority in manpower and firepower, investors this time are finally pondering the old postulate that past events do not guarantee future results?
Whatever the case, once the shooting starts it's safe to bet that things are going to pick up immediately, both in terms of news flow from the front and in global markets reaction. Volumes will soar and volatility will leap as professional traders and small investors alike join the rest of the world in trying to understand what is happening minute to minute.
Many readers have written to us in the past few weeks arguing that the war has already been discounted in the stock market and that it is actually falling on other events, such as the continued weakness in corporate earnings, or the uncovering of more corporate scandals like at Dutch grocery giant Royal Ahold (and they said it couldn't happen in Europe).
There is some truth to this. In the vacuum of global economic news caused by the standoff in the United Nations over Iraq, smaller events are causing larger-than-usual ripples.
But to think that global markets have already made their bets on this war is at the very least, bizarre, and at the very most, tremendously scary, since they have been falling.
Other readers have speculated that the countdown to war is simply another way for Wall Street to fleece unsuspecting investors, scaring them into selling out of the market and then pouncing once the fighting starts and grabbing good securities at bargain prices. Seems a bit conspiracy theorist to me. But nobody ever accused Wall Street of looking after the little guy's interest before.
So what we're left with is this question: Judging by securities prices in the last several weeks, either the collective wisdom of the global markets is hopelessly wrong about what is going to happen short-term once the invasion begins, or it senses something the rest of us don't. Which way are you betting?
For the latest news on Iraq and the markets, check out the CBS MarketWatch special report, Countdown to War.
David Callaway is executive editor of CBS.MarketWatch.com.
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