If Wall Street was hoping for a rousing rally Thursday to mark the start of the U.S.-Iraq war, it may have been underestimating the worry level of investors such as Borden Olive.
The 72-year-old Los Angeles resident said that despite the market's gains of the last week, he has stayed on the sidelines. In fact, he has been wondering whether it would be smarter to sell some of his shares, including AT&T; Corp. and Cisco Systems Inc., than buy more.
"I'm not feeling confident about the economy," Olive said. "I'm not convinced by anything I read about how the war is going to affect the economy."
At brokerage A.G. Edwards & Sons' Pasadena office, veteran broker David Hennon fielded calls from some clients who expressed concern about being heavily invested in stocks during wartime.
Hennon reminded them that the market surged once the 1991 Persian Gulf War was underway. "That could be the case this time," he told one client. "Obviously, I don't have a crystal ball, but I think this is a good time to be owning stocks for the long term."
Many small investors are being cautious, and their views contrast with the optimism many professional investors have expressed in the buildup to the war over the last seven trading sessions -- a period in which the Dow Jones industrial average has climbed 10.1%, including Thursday's gain of 21.15 points, or 0.3%, to 8,286.60.
"I do believe we're in a new bull market," said Marc Pado, U.S. stock strategist for New York-based brokerage Cantor Fitzgerald Inc. He predicts that a recovering economy and renewed investor interest in equities will lift the Dow to 10,800 in 2004.
For now, big-money investors are keeping the market rally alive amid strong conviction that the war will be over quickly and in favor of the United States and its allies.
But Wall Street is counting on buying by individual investors to kick in sooner rather than later, to help sustain the rebound and boost confidence that the three-year-long bear market is over.
The bulls carried the market Thursday, the first trading session since the outbreak of hostilities between the U.S. and Iraq. The Dow climbed back from an early drop of 135 points to end in positive territory.
Likewise, the Standard & Poor's 500 index, down as much as 1.7% early Thursday, closed with a slight gain, up 1.82 points, or 0.2%, at 875.84. The Nasdaq composite index also recovered from a loss to finish up 5.70 points, or 0.4%, at 1,402.77.
The start of the long-awaited conflict left the market "driven by headlines and rumors" during the session, said Art Hogan, chief market analyst at brokerage Jefferies & Co. in Boston.
Trading volume was more subdued than in recent days. Still, the overall sense was that "it looks like so far we're doing OK in the war," Hogan said.
Another sharp decline in crude oil prices helped to buoy investor sentiment. The near-term futures contract in New York ended down $1.27 at $28.61 a barrel, a three-month low.
Many market pros are betting that, once the war is over, Iraq's oil fields will be in good enough shape to guarantee that global crude supplies will soon be more than ample -- leading to lower fuel prices and a boost for the world economy.
That, in turn, could drive optimism about corporate earnings and give investors more confidence about buying stocks. That was how markets played out after the 1991 war.
The rally of the last week has been powered by big-money investors, including pension funds, hedge funds and other institutions that are fearful they could be left behind if the post-war scenario turns out the same this time, analysts say.
"Certainly there is a lot of money that doesn't want to miss it" this time, Hogan said.
But many individual investors, burned by the bear market, appear to be less certain about the war's outcome and the effect on the weak economy.
TrimTabs.com Investment Research of Santa Rosa, Calif., estimates that stock mutual funds took in a net $900 million in the week ended Wednesday. But that was far less than the $1.7 billion estimated to have flowed into bond funds.
Working the phone on Thursday, broker Hennon listened to one client question the U.S. policy in Iraq and express fear of an international backlash. Hennon replied that "I'm concerned, like everybody else. You just hope and pray that this is enlightened," he said of the war.
Some individual investors say they are simply content to wait longer before committing new money to stocks.
Rob Smith, a retired insurance agent who said he sold out of stocks in spring 2002, is confident of a U.S. military victory -- but he hasn't begun to reinvest.
"I'm sitting on the sidelines, but I wouldn't be surprised if I jumped in as soon as Saddam is gone," said Smith, 63, of Burbank, interviewed in the parking lot of his local Target store.
For now, he's keeping his cash in money market funds and government bonds.
Tania Paneno, a 47-year-old pastry chef from Montrose, said she bought stocks such as Microsoft Corp. and Boeing Co. for the first time after the Sept. 11 terrorist attacks.
Lately, Paneno said, she has been thinking about buying some technology stocks. But like Smith, she is waiting.
"I support a conclusion of Saddam's regime," Paneno said. "I think it'll only benefit the market if we come out on top."
Some market pros say rising interest rates in the bond market could sour more individuals on bonds, to stocks' benefit.
Institutional investors have been selling bonds to buy stocks in recent days. That has caused yields on new bonds to rise, depressing the value of older bonds that bear lower fixed rates.
But Thursday the bond sell-off halted, at least for a day. The yield on the 10-year T-note slipped to 3.96% from 3.99% on Wednesday. The yield has surged from 3.56% on March 10.
Among other market highlights:
* Rising stocks outnumbered declining issues by 19 to 14 on the New York Stock Exchange and by 17 to 14 on Nasdaq.
At the start of the session the NYSE observed two minutes of silence to honor U.S. troops. Nasdaq did the same later in the morning.
* European markets, which like Wall Street posted big gains over the last week, were mixed. Spain's market lost 1.1% and the Italian market slid 1.3%, but the German market inched up 0.1%.
Times staff writers Hanah Cho, Josh Friedman and Kathy M. Kristof contributed to this report.
Market Roundup, C6-7