Stocks surge at approach of war with Iraq

Dow leaps 282 points

Nasdaq climbs 51

S&P 500 gains 29

Bush's ultimatum to Hussein

White House warning seems to end uncertainty

March 18, 2003|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Stock prices soared yesterday, as war with Iraq appeared imminent rather than uncertain and investors gained confidence that a U.S.-led invasion would be short and successful.

The Dow Jones industrial average, an index of 30 blue-chip stocks, jumped 282.21 points, or 3.59 percent, to 8,141.92 Every member of the 30-stock average rose except Altria Group Inc.

In the past four trading days, the Dow has gained 617.86 points, enabling it to close above 8,000 yesterday for the first time since Feb. 21. Yesterday's gain was the indicator's biggest since Oct. 15, when it soared 378.28 to 8,255.68.

The technology-laden Nasdaq composite index gained 51.94, or 3.87 percent, to 1,392.27. Standard & Poor's 500 index, a broader measure of market performance, rose 29.52, or 3.54 percent, to 862.79.

Investors reacted to White House statements yesterday that President Bush was abandoning diplomacy and giving Iraqi leader Saddam Hussein an ultimatum to leave Iraq voluntarily to avoid a military conflict.

The months of uncertainty about a possible war had dragged down stock prices, as investors waited on the sidelines, analysts said.

"The anticipation is too painful," said Diane Swonk, chief economist with Bank One in Chicago. Now it appears the Iraqi leader is being given "48 hours to get out of Dodge. That's decisive for the market."

Alan Ackerman, market strategist with Fahnestock & Co. in New York, said, "This is not necessarily a confirmation that people want war. It indicates that people want some type of motion, that the uncertainty of the U.S. and Iraqi situation was beginning to take a toll on confidence. It took a toll on sentiment, it took a toll on spending and, most importantly, it took a toll on capital spending on the part of corporations."

Ackerman warned that the recent rally could reverse course promptly and advised investors not to make any huge bets on stocks.

Other factors besides the war contributed to the rally that began late last week. Analysts said the market was due for a change of direction after weeks of selling.

Short-sellers also were responsible for the gains, as they purchased stocks to replace shares they had previously borrowed. Short-sellers borrow shares from other investors and sell them, betting the shares will fall so that they can replace them at a lower price and pocket the difference.

Many short-sellers are aware of how stock prices jumped during the Persian Gulf war in 1991 and are trying to replace shares now before stock prices get any higher, said Chuck Carlson, chief executive of Horizon Investment Services in Hammond, Ind.

In 1991, the Dow jumped 4.6 percent the first day of trading after the U.S. air campaign against Iraq began.

Some analysts are optimistic that a war this time will go as smoothly as the 1991 campaign.

"The only thing certain is that a war with Iraq will be won and will be won quickly," said Al Goldman, chief market strategist with A.G. Edwards & Sons in St. Louis. "Everybody is going under the assumption that the initial attack will be so horrendous that there will be little opposition."

A quick victory would be good for the economy, some analysts said, anticipating that oil prices will drop, consumers will loosen purse strings and businesses will invest in equipment and begin hiring.

A victory also might help President Bush get most of his tax proposal passed, including the elimination of a tax on dividend income, analysts said.

But those expectations could be spoiled if there are any major setbacks, such as a prolonged war, heavy casualties or terrorist retaliation.

"That's the key here. The war has to be short, no surprises, no significant casualties on the allies' side," said Angel Mata, senior vice president of listed trading at Legg Mason Inc. in Baltimore. "If it's a significant hurdle, you will see it in the market immediately."

Not everyone is sure that the war effort will be problem-free.

"I'm assuming we are going to have a quick military victory, but there will be some complications afterward. There could be terrorism on oil facilities, and elsewhere, the North Korea situation will continue on and get worse probably," said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis.

Elsewhere on the broad market, the Russell 2000 index, a benchmark of small-cap stocks, surged 11.01, or 3.1 percent, to 365.40 and the Wilshire 5000 total market index soared 266.67, or 3.4 percent, to 8,163.16.

The Sun-Bloomberg index of the top stocks in Maryland gained 4.29, or 2.4 percent, to 179.89. FTI Consulting Inc. rose $1.87 to $44.32, and Lockheed Martin Corp. advanced $1.76 to $46.95.

Advancing issues outnumbered decliners more than 3-to-1 on the New York Stock Exchange. Volume was 1.7 billion shares, up from 1.54 billion on Friday.

Based on the Wilshire's change, the total value of U.S. stocks rose $320 billion.

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