The September 11th attack | America strikes back
U.S. retaliatory attack could pressure markets
NEW YORK Stock prices are expected to come under pressure today, jeopardizing last week's healthy gains, in the wake of the U.S. military attacks on the Taliban in Afghanistan.
There is a chance stocks could briefly rally, a sort of patriotic nod from Wall Street, analysts said.
But they also believe the buying will fizzle as investors worry whether the United States will suffer more terrorist attacks after American and British forces unleashed missile attacks against military targets and Osama bin Laden's training camps inside Afghanistan, opening a new front in the war against terrorists blamed for the attacks that murdered thousands in New York and Washington.
"I wouldn't be surprised to see (the market) go up initially, but that probably won't last. I have heard worries that there is a 100 percent chance of another terrorist attack if we attack Afghanistan," said Richard A. Dickson, a technical analyst for Hilliard Lyons in Louisville, Ky. "The market will not respond well to that."
Although Americans had been expecting the United States to launch strikes against Afghanistan as it did yesterday, Wall Street will remain mired in its uncertainty over what that means for the health of the economy and the market. That spells losses for the stock market, analysts said.
"People are going to start thinking, 'What is going to happen next? Will it be bioterrorism?," Dickson said.
The political uncertainty combined with last week's rally on Wall Street build a strong case that stocks will fall today, analysts said, and there are other factors that are adding to the uncertainty and potential for a decline including the upcoming third-quarter corporate earnings reports.
The market has been alternating between spurts of buying and selling stocks since the Sept. 11 terrorist attacks that leveled the World Trade Center and damaged the Pentagon.
Last week, Wall Street was feeling optimistic enough to give buying a turn, sending the Dow industrials up 272.21, or 3.1 percent. The blue chips have now recovered 884 points, or nearly 65 percent, of the 1,369 lost in the first week of trading following last month's attacks.
The Nasdaq composite index, which lost 272 points in the first week of trading after the attacks, rose 106.50, or 7.1 percent. The tech-focused index has posted gains for the previous four trading session, a kind of winning streak not seen since June 26-29.
The market's advance was due in part to positive outlooks from the Federal Reserve's ninth interest rate cut this year, a push by President Bush for an economic stimulus package worth $60 billion and positive outlooks from Dell Computer and Cisco Systems.
But ready or not, investors are about to endure a welter of third-quarter corporate profits reports, with analysts expecting a litany of bad news.
It is inevitable that companies will load their reports with one-time charges and writeoffs, realizing that now is the time to own up to as much bad news as possible.
Analysts expect earnings for the quarter to be down 20 percent year-over-year, but they admit that is just a guess much will depend on how much damage to the bottom line companies report for the after effects of the Sept. 11 attacks.
And while much of the bad news is expected, if it's deeper than anticipated, the market could drop further, analysts say.
Although today is the Columbus Day holiday for government workers, bank employees and some others, the stock market will be open for business as usual. There will be no bond trading, and the weekly auction of short-term Treasury bills will take place tomorrow.
Meanwhile, Wall Street is beginning to look beyond the end of October, amid hopes there will be only isolated further terrorist attacks, says Chicago investment manager Marshall Front.
"There is a huge amount of monetary and fiscal stimulus in the works, totaling $200 billion or more, at a time when investors are sitting on about $5 trillion in short-term instruments, including money markets and cash," said Front, of Front Barnett Associates.
Beyond government actions, he said, "we are seeing a dramatic drop in energy prices and a record level of home refinancings."