Market’s gains NEW YORK >> It was a turnaround no one expected: After pushing near multiyear lows, Wall Street staged its strongest advance in five months, surprising many who doubted the market could rally given investors' persistent war fears.
signal investor
resiliency
On the eve of war, Wall Street stages
its strongest advance
in five months this weekBy Hope Yen
Associated PressStill, while no one is boldly declaring the losses are over, the gains may signal an investor resiliency that bodes well for stocks in the months ahead.
Indeed, some analysts believe the sharp advance this past week, coming on the strongest trading volume of the year, reinforces optimism about a short-term market rally at the least once the uncertainty about Iraq has ended.
"If there are signs there will be a short confrontation, then the rally we see now will appear again and continue," said Tracy Herrick, chief investment strategist at Jefferies & Co. "This is a flash ahead, a precursor to the rally that would follow."
Herrick said investors' unwillingness to sell stocks past October's five- and six-year lows for the main market signals their belief that the economy isn't that bad and should improve, even if only gradually.
Positive factors likely contributing to a strengthening economic recovery include low interest rates and an expectation that corporate spending will resume once the Iraq situation is resolved, he said.
"The economy isn't that bad," Herrick said. "There are three powerful things supporting the rally after the confrontation begins," which are the Federal Reserve's aggressive action in cutting rates, President Bush's proposed tax cuts and an expected decline in oil prices.
Wall Street posted a weekly gain this past week primarily on the strength of Thursday's rally, when the Dow Jones industrials soared 269 points and the Nasdaq composite gained 61. That came a day after the Dow fell to within 111 points of its lowest close in more than five years.
Explanations for the rally varied -- some believed a war was imminent, while others suggested a conflict may not happen at all. But many agreed that much of the gains likely resulted from bargain hunting as well as short-term bets on the market's direction.
Analysts also questioned the sustainability of the advance, particularly as the United States delayed a proposed March 17 deadline for Iraq to disarm or face war. They said long-term market gains can't be achieved until there is a resolution.
Still, some experts say the rally might signal a turn in investor sentiment. They also noted the market historically has rebounded after sharp drops in consumer confidence, which plunged last month to a near 10-year low.
"The market is in the midst of a bottoming process," said Steven Goldman, chief market strategist at Weeden & Co. "There's a lot of sentiment out there that states that we've discounted a lot of this war uncertainty already.
"So investors are thinking, 'Let's start rallying,' with the hope and possibility the economy will show further strength afterward," he said.
Of course, uncertainties remain. Analysts stress that while stocks may initially rally at the onset of war, sentiment could quickly change depending on the duration of the conflict.
The market also faces some risks once investors turn their full attention to the economy's fundamentals from political events, since much of the recent data reflect a mixed outlook.
Thursday's market gains, for example, came despite a trio of lower-than-expected readings on inflation, business inventories and retail sales, although some of weak performance was attributed to the war uncertainty.
After resolution in the Middle East, said Philip S. Dow, managing director of equity strategy at Dain Rauscher Wessels, "we'll find out whether Iraq is an excuse or not for the market declines."
For the week, the three main gauges snapped a two-week losing streak. The Dow had a weekly gain of 119.68, or 1.6 percent. It closed yesterday at 7,859.71.
The Nasdaq was up 35.04, or 2.7 percent, for the week to end at 1,340.33. The S&P 500 index rose 4.38, 0.5 percent, to finish at 833.27.
For the week, the Russell 2000 index, the barometer of smaller company stocks, gained 0.21, or 0.1 percent, to 354.39.
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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