Shares Shoot Up on Mideast News
Wall Street may have staged a war rehearsal Friday, as rumors of favorable news from the Mideast sparked a sharp turnaround from an early sell-off.
The Dow Jones industrial average, down 111 points as trading opened amid a gloomy February employment report and surging oil prices, quickly recovered on word that U.S. forces may be close to locating Al Qaeda leader Osama bin Laden.
The Dow ended the day up 66.04 points, or 0.9%, at 7,740.03. Other major indexes also closed modestly higher.
The lightning recovery on mere rumors about Bin Laden fits the widely predicted scenario should the United States launch an attack on Iraq: Many analysts believe that the market would zoom immediately at the start of a war simply because major elements of uncertainty -- the whether and when of a conflict -- finally would be eliminated.
“You’re seeing a really sold-out market, one that is susceptible to good news,” said A.C. Moore, investment strategist at money manager Dunvegan Associates in Santa Barbara.
Despite Friday’s rally, key indexes fell for a second straight week and have lost ground in six of the last eight weeks. The Dow fell 1.9% for the five-day period and is down 7.2% year to date. The Nasdaq composite index, up 2.40 points to 1,305.29 Friday, slid 2.4% for the week and is down 2.3% this year.
The market had been expected to fall at the outset of trading Friday, after President Bush on Thursday appeared to offer little hope of avoiding war. What’s more, the government reported early Friday that a net 308,000 jobs were lost in February, raising fears that the economy could be heading back into recession.
But when a buzz hit Wall Street that two of Bin Laden’s sons were wounded in an attack in Afghanistan, and that the Al Qaeda leader himself may be near capture, that news became the market’s driving force -- though U.S. officials couldn’t substantiate either story.
The rally was stoked in part as bearish “short sellers” who had previously borrowed stock and sold it, betting on lower prices, rushed to purchase shares to close out their bets. The chance that Bin Laden might be caught over the weekend, which probably would fuel a strong rally Monday, left some short-sellers too nervous to keep their positions, analysts said.
“There are a lot of traders just knocking this market around,” said Scott Wren, equity strategist at brokerage A.G. Edwards in St. Louis.
But he said that most of his firm’s individual-investor clients are shunning stocks in favor of high-quality bonds, such as Treasury issues. With war looming, Wren said, “they are very afraid of the stock market now.”
Treasury bond yields continued to sink Friday as buyers piled in, though yields ended above their lows of the day. The 10-year T-note fell as low as 3.61% and ended the day at 3.64%, down from 3.66% Thursday and 3.69% a week earlier. The yield is nearing its generational low of 3.57% hit Oct. 9.
Fear of war and the economic aftermath continued to dominate Friday in other markets as well. Japan’s Nikkei 225 stock index closed at a 20-year low, dropping 225.03 points, or 2.7%, to 8,144.12. Most major European stock markets lost between 1% and 2.5% for the day.
In commodities trading, near-term crude oil futures rose 78 cents to $37.78 a barrel, the highest since October 1990, when the world was bracing for war after Iraq invaded Kuwait.
Gold, however, failed to get a lift from oil’s latest surge. Near-term gold futures in New York fell $6 to $350.80 an ounce.
On Wall Street, some experts don’t buy the conventional wisdom that many big investors are poised to buy, just waiting for war to start.
Peter Schiff, president of Euro Pacific Capital Inc. in Orange County, argues that “such a highly anticipated rally is unlikely to occur,” precisely because it is so anticipated.
Market Roundup, C4-5
