No guarantee NEW YORK >> In the past, Wall Street has enjoyed relief rallies after a long-anticipated war actually started. But the stock market shouldn't bet on that phenomenon happening if and when the United States begins military action against Iraq.
of war rally
In this case, history may not
prove to be a useful guideBy Amy Baldwin
AP Business Writer"I've been telling people not to count on it," said money manager Gary Kaltbaum.
An economy unable to shake its slump and the stock market's three-year slide have made investors far too skeptical to plunge back into buying once the Iraq suspense has ended.
An indication of just how unwilling investors are to make big moves is that buying activity for New York Stock Exchange stocks is at a 6 1/2 year low, according to Lowry's Buying Power Index.
"Lower (share) prices are just not bringing buyers into the market. ... It is amazing that demand hasn't picked up at all," said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla., which compiles the index.
There's little doubt that investors will breathe a sigh of relief if a war is started and they begin to get a clearer picture of U.S. military prospects. But that also means that investors will be free to refocus their attention on the economy, which is still struggling to get going again.
"Conventional wisdom says you get a move (up on) emotional optimism. ... But it doesn't change anything about earnings, uncertainty about terrorism, overcapacity in every industry out there and (stock) valuations remaining too high," said Kaltbaum, president of Investors' Edge Partners, a money management firm in Orlando, Fla.
Historically, stocks depressed by war jitters begin to rally after the United States initiates military action. Many hopeful market observers have been comparing current events in the market and in Iraq to the run-up to the Persian Gulf war in early 1991.
In the five months before that war, the Standard & Poor's 500 lost 5.8 percent, according to Manning & Napier Advisors Inc. But during the war, in January and February 1991, the S&P rose 11.9 percent.
Investors hoping for a surge this time should keep in mind that this is a market that has defied history.
The market already has suffered a rare, three-year decline from 2000 to 2002. And so far this year, stocks are down.
There is also the tendency of the market and economy to recover once interest rates start coming down. Yet, rates have been lowered 12 times since early 2001 and the economy is still weak.
Because the three-year slump on Wall Street is blamed on excesses of the late 1990s bull market and to a slowdown in business, it's those problems that must be resolved before stocks to take off. The onset of war won't solve the market's fundamental problems.
If a war starts, there will be one less uncertainty weighing on investors, but they'll still have plenty of other reasons to worry about committing to stocks.
"Iraq prevents you from looking into the future. You can't say that capital spending will come back or that consumers will start spending more," said Larry Wachtel, market analyst at Prudential Securities.
Wachtel said stocks might rally briefly when a war starts but that chances are they will have a tough time sustaining any gains.
A war, he said, "ends the uncertainty and brings you back to reality. It might be an unhappy reality."
Wall Street's main stock gauges posted their second straight weekly losses. For the week, the Dow Jones industrial average fell 151.05, or 1.9 percent, despite a gain of 66.04 on Friday. The Dow closed at 7,740.03.
The Nasdaq dropped 32.23, or 2.4 percent, for the week to end at 1,305.29. The S&P lost 12.26, or 1.5 percent, finishing at 828.89.
For the week, the Russell 2000 index, the barometer of smaller company stocks, lost 6.34, or 1.8 percent, closing at 354.18.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 7,857.32, down 115.28. A year ago, the index was at 10,890.67.
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