IMPACT OF THE GULF WAR : Investors Go on Gulf Thrill Ride : Markets: The Dow average swings wildly on scraps of news about the war. Oil drops to a 7-month low as gold prices plunge.
Investors went on a wild roller coaster ride Friday, as hopes for an immediate end to the war were fueled--then dashed--within a matter of hours. But like the end of an amusement park ride, the prices of stocks and bonds finished the trading day almost exactly where they began.
The Dow Jones industrial average closed down 2.47 points to 2,889.36, after having risen more than 40 points in early trading--when a negotiated settlement of the Gulf War seemed imminent.
Meanwhile, the price of the Treasury’s bellwether 30-year bond closed unchanged from Thursday, with a yield of 8.06%.
However, oil and gold prices fell sharply again, as the weakness of Iraq’s hold on Kuwait became ever clearer.
Among the trading highlights:
* Oil prices dropped to seven-month lows. Crude oil for April delivery on the New York Mercantile Exchange closed down 59 cents at $17.91 a barrel after at first tumbling by 89 cents to $17.61, the lowest since July 12. Oil prices had been up early in the day, when President Bush announced that Iraqi troops in Kuwait had set fire to more than 100 oil wells in 24 hours. But prices fell back quickly because of a growing belief that the war’s end is near.
* The price of gold plunged $5.70 an ounce to close at $357.00 on the New York Commodities Exchange--the lowest spot price since July. Silver prices hit a 17-year low Friday, down 12.9 cents to $3.508 an ounce.
* The value of the dollar rose against other major currencies in European trading, largely on the belief that a quick end to the war would help the U.S. economy.
“The war is going to end soon, whether it is this weekend or not,” said Marshall Acuff, portfolio strategist at Smith Barney, Harris Upham & Co. in New York.
Economists believe that a quick end to the conflict could help the U.S. economy by boosting consumer confidence, which was shattered by Iraq’s invasion of Kuwait, and by stabilizing oil prices, a main component in inflation figures.
Yet Wall Street’s watchword on Friday was clearly “uncertainty,” as stock prices were buffeted by every bit of news coming from the Gulf.
“This was a trader’s market,” said Michael Metz, market strategist at Oppenheimer & Co. “The market swung at least 100 points today. Traders were reading the ticker and reacting very quickly.”
Early in the day, the stock market shot up by about 44 points after President Bush’s statement that Iraq must start to pull its troops out of Kuwait by noon today. But as it became apparent that Hussein was unwilling to go along with an unconditional withdrawal, the market plunged 50 points, giving the Dow a 10-point loss. Prices edged up and fell back the rest of the day.
The uncertainty on Wall Street is largely caused by worries about the war and its effect on the economy, experts said.
Although many believe that Iraq is weak and unable to sustain a long war, there is still fear that Hussein will fight as long as possible. That worries the market because the war is costly. And as costs rise, so does the U.S. deficit. Some believe that interest rates could follow suit, derailing a predicted recovery.
There is another wild card too, economists note. Even if the war ends tomorrow, experts are not sure how quickly the economy will get back on its feet. Much of that depends on consumer confidence, and, aside from the war, consumers are worried about job prospects, economists noted.
Because unemployment has risen sharply in a short period of time, many consumers are fearful about maintaining their jobs. That may keep them from spending freely even after the war stops.
“We may see a recovery take hold, but the sense I get is it is going to be a very sluggish one,” said Gary Schlossberg, economist at Wells Fargo Bank in San Francisco.
Nevertheless, a quick end to the war should benefit stock prices, Schlossberg said.
“I would think we would get a bounce in consumer confidence . . . and that’s good for stocks,” he said. “But the question is whether there is enough inherent strength in the household sector for consumers to sustain any increased spending after the war is over.”
