Sustainable war rally NEW YORK >> Wall Street surprised everyone over the past two weeks, surging higher on growing anticipation of a short and successful U.S. war with Iraq. And now many investors believe that when the war is over, stocks will take off the way they did after the Gulf War 12 years ago.
no guarantee
along today’s
rocky Wall Street
By Amy Baldwin
Associated PressBut a stock market that broke all precedents during its late 1990s boom and subsequent three-year bust can't be predicted by looking at a more tranquil market from the past.
One month after the Gulf War began in 1991, the Standard & Poor's 500 index -- the broadest of the market's major gauges -- had risen 16.7 percent. After six months, the S&P had climbed 20.6 percent.
"It is night and day," said Peter Schiff, president of investment firm Euro Pacific Capital, of the difference between the market today and in 1991.
"We were in a bull market in the stock market in 1990 and 1991. We had gone through a correction (leading up to) the Gulf War. ... We are now in a bear market that began in 2000," he said.
The market has rallied hard in anticipation of the war, and in response to its first three days. The S&P 500 has gained 8.1 percent in the past two weeks, and the Dow Jones industrials have risen 10.1 percent.
The market claimed another stunning advance Friday with the Dow barreling up 235 points as TV networks broadcast images of huge explosions around Baghdad, raising investors' hopes for a quick victory ending in the capitulation of Saddam Hussein's regime. The S&P and Dow both ended the session with their eighth straight daily win. The Dow ended the week up 8.4 percent, its best week since Oct. 8, 1982.
Analysts say a longer-term rally is hardly a sure thing -- the precipitous drop following the dot-com boom decimated investors' confidence, and the corporate accounting scandals of the past two years have only added to the distrust of Wall Street.
So few market watchers expect investors to plunge into stocks after the war with the fervor they displayed 12 years ago, when Wall Street was considered the only place to really make money.
"This rally will peter out regardless of what happens," predicted Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. "The market in times like this is 90 percent psychologically driven. In quizzing people, I know no one wants to own stocks. Once they are higher, people will buy again."
Another big variable is the economy, which is healthier now than it was in 1991 but still remains shaky.
The last war also turned out to be brief, surprising many investors and giving them a reason to rally. This time, investors have already placed bets on the war being short lived and there's no guarantee that will be the case. Many analysts are afraid the market will suffer heavy losses if the war drags on longer than investors anticipate.
"The (1991) Gulf war was an anomaly in how quickly it ended and how successful it was. This is clearly going to be something different from that," said Peter Doyle, chief investment strategist for Kinetics Asset Management.
When the war is over, investors will surely turn their focus back to the economy and corporate profitability, and that could bode ill for stocks in the near term.
"Wall Street was trying to convince investors that the only thing that is wrong with the U.S. market is Iraq. ... Now people might start paying attention to how bad things are for the U.S. economy, for corporate earnings," Schiff said.
During the past two weeks, however, the market has ignored negative news about business, including a jump in inflation, a plunge in housing construction and a cautious outlook from Oracle. Analysts fear the market is prime for profit-taking.
Schiff said, "There are people with decent profits over the last few weeks and they are going to want to lock those in."
The market's three main gauges posted robust gains for the week. The Dow had a weekly win of 662.26, or 8.4 percent, closing at 8,521.97.
The Nasdaq composite index ended the week up 80.84, or 6 percent, closing at 1,421.17. The S&P rose 62.62, or 7.5 percent, to finish at 833.27.
For the week, the Russell 2000 index, the barometer of smaller company stocks, gained 21.84, or 6.2 percent, to finish at 376.23.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 7,896.37, up 39.05 from the previous week. A year ago, the index was at 10,904.69.
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