Dow Soars as War Appears Imminent
Stocks zoomed again Monday as war with Iraq became increasingly likely, bringing clarity to investors who have been whipsawed in recent weeks by the shifting currents of global diplomacy.
The Dow Jones industrial average soared 282 points, widening its cumulative gain to 617 points, or more than 8%, in less than a week. Oil prices continued their decline, the dollar rose against the yen and euro and Treasury bond yields jumped as investors became increasingly optimistic that a U.S.-led war on Iraq would be quickly and successfully resolved.
“The stock market has been pressured by fear and uncertainty: ‘Are we going to war? If so, when? And how will it play out?’ We’ve finally received answers to the first two questions,” said Alan Skrainka, chief market strategist at brokerage Edward Jones in St. Louis.
“We’re going to war, and it’s probably going to take place this week. A tremendous weight of uncertainty has been lifted.”
The likelihood of war grew Monday night when President Bush issued an ultimatum giving Iraqi leader Saddam Hussein 48 hours to relinquish power or face a U.S.-led invasion. Asian markets opened higher after the speech, and the dollar strengthened further against the yen in trading in Tokyo.
On Wall Street on Monday, the Dow rocketed 282.21 points, or 3.6%, to 8,141.92, extending an upsurge that started Wednesday midday and accelerated Thursday. The rally gained steam as “short” sellers rushed to close out their bearish bets and as more institutional investors positioned their portfolios for a replay of the 1991 Persian Gulf War, when U.S. stocks surged and oil prices tumbled.
The blue-chip Standard & Poor’s 500 climbed 29.52 points, or 3.5%, to 862.79, and the technology-heavy Nasdaq composite index gained 51.94 points, or 3.9%, to 1,392.27.
In heavy trading, winners outnumbered losers by 5 to 2 on the New York Stock Exchange and by 2 to 1 on Nasdaq. It was the fourth straight gain for the Dow and the S&P; 500 and the third in the last four sessions for Nasdaq.
European markets also posted big rallies Monday, including gains of 3.5% in Germany and 3.4% in France and Britain. The Dow Jones Euro Stoxx 50 index has climbed 16.7% in the last three sessions -- the strongest three-day rally in its 16-year history, according to Bloomberg News data.
In commodity trading, near-month oil futures dropped 45 cents to $34.93 a barrel, the lowest level since Feb. 10 and well off its recent high of almost $38 a barrel. Gold, which has fallen sharply in recent days, inched up 60 cents to $337.10 an ounce in New York trading.
In the bond market, the yield on the benchmark 10-year Treasury note soared to 3.84% from 3.70% on Friday and 3.56% a week ago.
Even if the Federal Reserve cuts short-term interest rates at its meeting today -- which many economists believe is unlikely -- investors apparently believe long-term bond yields have bottomed out, assuming a war with Iraq goes as planned and the economy begins to perk up.
But Wall Street pros caution that those are two big assumptions.
“The stock market is betting on a successful outcome: a fairly quick and decisive victory, and no major damage” to Iraq’s oil fields, said Rick Jandrain, equity strategist at Banc One Investment Advisors in Columbus, Ohio. “There is a risk that if one of those assumptions is errant, this rally will fizzle out.”
Art Bonnel, manager of U.S. Global Investors Bonnel Growth mutual fund in San Antonio, noted that recent economic data have been lackluster. He said his fund has more than 50% of its assets in cash and that he will wait for evidence of a stronger U.S. economy before becoming bullish.
“The prevailing thinking seems to be ‘Buy stocks because we’re going to war, which always means the market is going up,’ ” Bonnel said. “I think that’s foolhardy. I’m scratching my head.”
For one thing, Bonnel said, in the rally since last week the major indexes already have gained most of the 10% bounce that some analysts said would occur once a U.S.-led bombing campaign started. The indexes are back to levels hit in mid-January and early February.
Bonnel said short-term traders -- rather than long-term investors -- may be behind the current move.
“Once we do go to war, all these people buying today may be selling, hoping to make a profit,” he said.
On the optimistic side, some strategists said stock valuations relative to company fundamentals are reasonable in the context of today’s low interest rates, even after the gains of the last four sessions.
Jandrain pointed out that the annual dividend yield on the S&P; 500, now 1.87%, is higher than the yield on the 90-day Treasury bill, a proxy for short-term interest rates. Historically, that’s rare, he said, and it supports the theory that stocks are attractively valued relative to government debt.
In other highlights:
* Wal-Mart gained $2.61 to $51.97 after saying sales this month are on track to meet forecasts. Among other retailers, Dollar General jumped $1.71 to $12.48 after beating analysts’ fourth-quarter profit estimates.
* In the tech sector, Microsoft climbed $1.07 to $25.93, IBM advanced $3.46 to $82.46 and Yahoo rose $1.69 to $22.38.
* MBNA jumped $1.86 to $15.36 after saying its loan losses are declining.
* Lockheed Martin added $1.76 to $46.95 after winning a $4.1-billion order from the Pentagon for transport planes.
* Insurer UnumProvident gained $1.45 to $9.01 after SunTrust Robinson Humphrey upgraded the stock.
* Tobacco shares fell as Salomon Smith Barney cut the industry to “underweight” from “market weight,” citing concerns about liability and domestic sales. Altria Group, formerly Philip Morris, lost 21 cents to $34.72, and Carolina Group shed 67 cents to $18.48.
Market Roundup, C9-10