STOCKS : Traders Shift Focus to Economy After War; Dow Off 1.49
Euphoria over the success of the allied ground campaign quickly faded Monday on Wall Street as investors began to switch their focus from the rosy progress of the war to the grimmer economic news at home.
Meanwhile, Asian markets opened today in a cautious mood, despite news that Iraq agreed to pull its troops from Kuwait. The Nikkei index of the Tokyo Stock Exchange was up 164.72 to 26,627.48 at midday, after rising 559.95 on Monday.
In New York on Monday, the Dow Jones industrial average lost 1.49 to 2,887.87 after soaring more than 30 points early in the day. News of the Iraqi pullout plan came after the market close.
Broader market indexes were mostly higher, however, as trading volume reached 193.82 million shares on the New York Stock Exchange. Advancing issues outnumbered declines by nearly 3 to 2.
The Dow’s pullback suggests that “everybody is worried that once the war is over that will be the end of the good news,” said Michael Sherman, chief investment strategist at Lehman Bros. in New York. “Then we’ll have to think about ugly things like the (federal) deficit, the banking crisis and the economy.”
The mixed reaction was also apparent in other markets, where gains turned into losses and vice versa:
* Oil prices fell as the early success of the ground war hit the markets. But prices then rebounded. In the end, the price of the benchmark light, sweet crude was up 3 cents to $17.94 a barrel on the New York Mercantile Exchange. Late Monday in after-hours trading in New York, crude tumbled to $17.69 a barrel on word of Iraq’s pullout plan.
* Gold rose $2.50 to $359.50 an ounce, and silver jumped 6.7 cents to $3.58 on the Commodity Exchange. The activity was largely attributed to bargain hunting.
* Bonds ended little changed while the dollar jumped.
The markets are in a transition, changing their focus from the war to longer-term factors such as interest rates and economic growth, analysts said.
“The (stock) market is putting the war behind it and trying to look more toward the future,” said Marshall Acuff, portfolio strategist at Smith Barney, Harris Upham & Co. in New York. “There appears there is some hesitancy at this point because it is waiting for more news about the economy.”
Economic news released so far this year has drawn a grim picture. Inflation is up, while industrial production, employment and consumer spending are all down.
Some believe, however, that the news will begin to brighten soon if declining interest rates and boosted confidence brought about by the end of the war spur consumers to spend again.
If the economy does turn around, it should help both the stock market and the strength of the dollar, market experts said.
Still, it is unclear just how soon a recovery will appear and whether it will be a lasting one, Acuff said. Consequently, he expects the markets to be relatively quiet until there is more evidence about which way the economy is going.
European markets, however, reacted with far more glee on Monday to the potential end of the war, although buying also faded in those markets as trading wore on.
German stocks rose to new 1991 highs at the start, but the buying dissipated and prices ended well below the day’s highs. The 30-share DAX index ended 18.63 points higher at 1,601.15, the highest close since Sept. 3, 1990.
Share prices also were pulled off their highs in London. The Financial Times 100-share average ended up 21.2, or 0.9%, to close at 2,335.5.
In U.S. trading, the NASDAQ index of over-the-counter stocks added 2.14, or 0.5%, to 451.09. Smaller stocks have been leading the advance since mid-January and show no sign of slowing.
Among the Market leaders:
* Drug stocks, including Pfizer, up 3 1/4 to 105; Syntex, up 5 1/2 to 77 1/2, and Schering-Plough, up 2 7/8 to 50.
* Companies that are expected to benefit from rebuilding Kuwait, including engineering firms Fluor, up 3 1/4 to 49 3/4, and Jacobs Engineering, up 1 7/8 to 35 5/8. Oil-services companies expected to benefit also soared. Halliburton jumped 4 1/2 to 52 7/8, Baker Hughes gained 1 3/4 to 28 3/8 and Schlumberger rose 3 1/2 to 62 3/4.
Separately, London’s war risk insurers decided Monday that the ground fighting, as it appears now, is unlikely to increase the danger to merchant shipping in the Gulf. The War Risks Rating Committee, which sets insurance rates for cargo traveling through war zones, did not meet on Monday and there were no immediate plans for it to do so later.
Government bond prices closed slightly higher in sluggish trading as a late spurt of buying helped pull the market out of a slump, analysts said. Trading was finished by the time news hit of Iraq’s intent to withdraw from Kuwait.
The Treasury’s 30-year bond rose 5/32 point, or $1.56 per $10 in face value. Its yield slipped to 8.05% from 8.06% Friday.
Bond prices weakened in very light volume throughout the morning, traders said. By late afternoon, however, buyers returned on news that auto sales fell sharply in mid-February. Each sign of continued weakness in the economy brings more investors to bonds, on the assumption that interest rates will continue to decline.
But now, some traders are warning that if the Persian Gulf War is finished soon--bolstering consumer confidence in the United States--investors may dump bonds temporarily, on expectations that an economic rebound would cause interest rates to rise.
Prices of many high-yield, high-risk junk bonds also rose Monday, continuing a rally from Friday. The price rise was led by issues of RJR Nabisco.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6.375%, up from 6% late Friday.
The dollar jumped, buoyed by signs that the ground war by U.S.-led forces in the Persian Gulf against Iraq was going well.
The dollar closed at 1.520 German marks in New York, up from 1.505 on Friday. It ended at 133.55 Japanese yen, from 132.15 Friday.
“It seems like there was a lot of euphoria out there,” analyst Bill Bertha of Mellon Bank said.
Dollar buyers are assuming that a quick end to the Gulf war will rejuvenate the U.S. economy and keep interest rates high on dollar-denominated investments, such as bonds. So dollar traders on Monday were making the opposite bet of bond traders, who saw a still-weak U.S. economy.
Soybean futures prices rose sharply on the Chicago Board of Trade in buying driven by dry weather in a key agricultural region of Brazil, the world’s second-largest soybean producer.
Soybean futures settled 5.75 to 8.50 cents higher, with the March contract up 6.25 cents to $5.757 a bushel, highest since Jan. 23.
Soybeans opened higher in reaction to lower-than-expected weekend rains in southern Brazil then spurted to fresh highs near the close amid forecasts of little precipitation in the region for the rest of this week. The dry area includes Rio Grande do Sul, Brazil’s largest soybean state.
Market Roundup, D10
CAUTIOUS MARKETS WAIT FOR GULF NEWS Dow: Monday: 2,887.87 down 1.49 Crude Oil: Monday: $17.94, up 3 cents Gold: Monday: $359.50, up $2.50 Dollar vs. Yen: Monday: 133.55 yen, up 1.40