On Wall Street, Investors Place More Bets on a Short Conflict
Just hours before the U.S. launched its long-expected attack on Iraq on Wednesday, some investors continued to lay down bets that the conflict would go well -- and quickly -- for America and its allies.
In New York, oil fell below $30 a barrel for the first time in three months, the dollar surged, and blue-chip stocks posted their sixth straight gain, the longest winning streak since August 2000.
“The market is handicapping a very short war,” said Bill O’Grady, director of fundamental futures research at brokerage A.G. Edwards in St. Louis.
That view also held in Asian markets today. After a mild sell-off following the White House’s announcement that the military campaign had begun, stocks were up sharply in late trading in most Asian markets. The Taiwanese market was up 1.9%, South Korean shares jumped 4.5% and the Japanese market was up 2.4%.
On Wall Street -- where security was tight amid heightened fears of terrorist attacks -- the Dow Jones industrial average traded in a narrow range Wednesday until a wave of buying hit late in the session. The index ended at 8,265.45, up 71.22 points, or 0.9%.
U.S. markets’ trading day ended about four hours before the deadline President Bush had set for Iraqi President Saddam Hussein to flee or face war.
The stock rally that began March 12 now has lifted the Dow 741 points, or nearly 10%. That has cut its year-to-date loss to 0.9%.
The Standard & Poor’s 500 also gained for a sixth session Wednesday, adding 7.57 points, or 0.9%, to 874.02. It is down less than 0.7% since Dec. 31.
The Nasdaq market had a tougher day, after software giant Oracle’s downbeat quarterly earnings report Tues- day clipped some technology stocks. The Nasdaq composite index eased 3.48 points, or 0.3%, to 1,397.07, though it remains up 4.6% this year.
Trading volume slipped from recent peaks, but winners topped losers by 6 to 5 on the New York Stock Exchange and by 16 to 15 on Nasdaq.
The day’s bullish action overall carried bad news for homeowners who have waited to refinance a mortgage: The yield on the 10-year Treasury note, a benchmark for mortgage rates, jumped to 3.99%, up from 3.91% on Tuesday and the highest since Feb. 14.
Treasury yields have soared in the last week as waning concerns about a war have led some investors to bail out of government bonds in favor of riskier securities such as stocks. Yields rise as bond prices fall.
Stock market investors were encouraged by another steep drop in crude oil prices Wednesday. In New York the near-term oil futures contract slumped $1.79 to $29.88 a barrel, the lowest since Dec. 14. The price has plummeted $7.95 a barrel, or 21%, since reaching a 12-year high of $37.83 a week ago.
In after-hours electronic trading on the New York Mercantile Exchange on Wednesday, prices fell further, to $28 a barrel.
“We’ve drained nearly all of the ‘risk premium’ out of oil prices,” O’Grady said, referring to the excess price the market had built in to account for the possibility that a U.S.-Iraq war would result in a major disruption of oil supplies.
Optimism about the United States’ ability to prevail quickly in a conflict also triggered another rebound in the dollar’s value. In New York, the greenback surged to 120.56 yen from 118.86 on Tuesday, while the euro fell to $1.057 from $1.063. The euro has slumped from a four-year high of $1.10 on March 10.
The dollar’s gains suggest that foreign investors may be moving money into U.S. assets, betting on a stronger economy once the issue of Iraq is resolved.
That is certainly what many U.S. stock buyers are thinking as well in rapidly lifting shares from last week’s five-month lows, analysts said.
But some experts advised caution, saying there was no assurance that the struggling economy would turn around rapidly even if the war goes well.
“I think you’re seeing more emotion here than [trading on] economic fundamentals,” said Joe Carson, economist at Alliance Capital Management in New York.
Some of the rally of the last week has been fueled by “short sellers,” traders who borrow stock and sell it, betting on lower prices. As share prices have rocketed, many short sellers have been forced to buy stock to close out their positions, analysts say.
Individual investors, by contrast, have not yet been a big source of demand in the rally, according to many brokerage and mutual fund companies.
“I think there is a lot of money on the sidelines,” said Robert Mikkelsen, head of institutional sales at brokerage Advest Group in New York. But among small investors, he said, “I don’t think you’re going to get too many believers on the first leg up” in stock prices, given the number of rallies since 2000 that have quickly petered out.
Among Wednesday’s highlights:
* European stock markets were mostly higher as war loomed. The German market gained 1.2%, the British market added 0.5%, and the Swiss market rallied 2.3%.
* U.S. blue chips were led by Procter & Gamble, up $1.30 to $87.92; Merck, up $1.41 to $54.46; and Coca-Cola, up 84 cents to $41.81. Such big-name shares often are favored by foreigners.
* Defense stocks continued their rebound from a sharp sell-off in January and February. Northrop Grumman rose $1.29 to $87.45. Lockheed Martin added 98 cents to $48.30.
Viisage Technology leaped $1.55 to $5.12. The Littleton, Mass.-based firm said the Department of Defense expanded its licensing of the company’s facial-recognition system.
* Shares of companies that might participate in rebuilding Iraq were mixed. Fluor inched up 4 cents to $33.37 and Jacobs Engineering rose 8 cents to $41.05, but Halliburton was down 40 cents to $20.50.
* FedEx jumped $3.50 to $55.18 after reporting that quarterly earnings rose 23%. Brokerage Bear Stearns gained $1.39 to $65.89 on its earnings report.
* Oracle dropped 94 cents to $11.31 after its profit report. Other software stocks losing ground included BMC Software, down $1.11 to $17.45; SAP, down 98 cents to $20.07; and Sybase, down 47 cents to $13.88.
Among other major tech shares, IBM lost 47 cents to $82 and Intel was off 27 cents to $17.98, but Microsoft rose 28 cents to $26.32.
* Near-term gold futures prices dipped $1.50 to $336.10 an ounce in New York. Most gold-mining stocks fell, including Placer Dome, off 13 cents to $9.34, and Goldcorp, down 29 cents to $10.28.
Market Roundup, C5-6