Slump Stuns Hopes for Wall St. ‘Victory’ Rally
Saddam Hussein’s statue wasn’t the only thing that ended lower Wednesday.
Wall Street slumped despite scenes of jubilant Iraqis in Baghdad attacking symbols of their former leader and welcoming U.S. troops.
Anyone hoping for a “victory” rally has been sorely disappointed this week. Even some market pros who figured that stocks could take a breather after surging ahead of the war say they were stunned by Wednesday’s session, when the Dow Jones industrials fell 100.98 points, or 1.2%, to finish at 8,197.94.
Broader indexes also slid, though trading volume was muted, in part because many investors and traders were glued to TV images from Iraq.
The swift U.S. military campaign to topple Hussein “proved all the naysayers wrong,” said Alan Skrainka, investment strategist at brokerage Edward Jones in St. Louis.
“This is positive -- I mean, come on!” he said, expressing dismay at the day’s losses.
Adding insult to Wall Street’s injury, oil and gold prices rose while Treasury bond yields fell. That was the markets’ pattern for much of the first quarter as worries about the impending conflict blackened investors’ mood.
Many analysts defaulted to the explanation that the stock market simply has been following the usual script in crises: Rally on expectations of a positive outcome, then sell when it proves true.
“We did this victory dance as a prelude to the war,” said Art Hogan, chief market analyst at brokerage Jefferies & Co. in Boston.
Indeed, the Dow jumped nearly 1,000 points from March 12 to March 21. As of Wednesday’s close, the index had given back 324 of those points.
Some said the war, even if it isn’t concluded, already has become yesterday’s news for investors -- and that the focus has shifted back to the U.S. economy and whether it can muster a sustained rebound.
A key assumption as stocks rallied in mid-March was that a fast war in favor of the United States would give consumers and businesses the confidence to open their wallets, after months of holding tight to their dollars.
That may yet happen, experts say. But investors may want more evidence before raising their bet on stocks, considering the number of market rallies that have quickly faded since 2000.
“I think investors have been beaten up so often, they want clearer signs” of an improving economy, said Gary Schlossberg, economist at Wells Capital Management in San Francisco.
The International Monetary Fund’s latest forecast, released Wednesday, predicted that the U.S. economy would grow 2.2% this year. In September, the IMF forecast 2.6% U.S. growth.
An immediate concern for investors is first-quarter earnings season, now underway. More than 580 companies have warned that results will be below expectations, according to earnings tracker Thomson First Call. Many firms have blamed weaker spending by businesses and consumers.
But if the stock market is supposed to look ahead, should first-quarter results matter much?
Hogan said Wall Street will be more interested in what, if anything, chief executives and chief financial officers say about the rest of the year -- specifically, whether they offer much hope for a turnaround in sales and profit.
Internet portal Yahoo Inc. provided some optimism after regular trading ended Wednesday as the company raised its financial estimates for 2003.
As for consumer spending, Schlossberg noted that a Mortgage Bankers Assn. index measuring applications for mortgage loans to buy homes (as opposed to applications for loans to refinance existing mortgages) rose last week to the highest level since September. That suggests that more consumers are gaining confidence in the economy.
Some analysts said they weren’t too troubled by Wednesday’s trading. Modest share volume indicated there was no rush to exit. And declining stocks outnumbered winners by a relatively slim 9-to-7 margin on the New York Stock Exchange.
Traders said business slowed to a crawl as the first TV images were broadcast showing a Hussein statue in Baghdad being toppled. On the NYSE floor workers cheered the sight.
But after an early rally that lifted the Dow as much as 90 points, sellers had control of the market for most of the day. That reminded some of Monday’s session, when the Dow rocketed 243 points early on, then gave almost all of it back by the close.
On Wednesday, broad U.S. indexes suffered worse than the Dow. The Standard & Poor’s 500 fell 12.30 points, or 1.4%, to 865.99. The Nasdaq composite lost 26.20 points, or 1.9%, to 1,356.74.
U.S. stocks fell further than major foreign markets. Britain’s main market index eased 0.2%. The Japanese market lost 0.8%, as did the Mexican market.
Bullish action shifted to commodity markets. Crude oil ended near its highs for the day. Near-term futures in New York rose 85 cents to $28.85 a barrel.
Wall Street had assumed that oil prices would slide with a U.S. victory in Iraq, giving the economy a boost. But this week, the Organization of the Petroleum Exporting Countries said its members would meet April 24 to consider production cuts.
That could cause tighter supplies at a time when U.S. oil inventories already are well below average. An Energy Department report Wednesday said U.S. crude supplies are 15% below their year-earlier levels.
As oil gained, so did gold. Near-term futures in New York added $3.40 to $325.60 an ounce, though the metal’s price remains near four-month lows.
Some money leaving stocks Wednesday may have gone into the Treasury bond market. The yield on the 10-year T-note fell to 3.90% from 3.93% on Tuesday.
Market Roundup, C6-7
