US Stocks Seen Getting Brief Saddam Lift
Sunday December 14, 7:32 pm ET
By Bill Rigby
NEW YORK (Reuters) - U.S. stocks look ready for a brief rally at Monday's open as investors welcome the capture of former Iraqi President Saddam Hussein, but remain cautious over the threat of violence in Iraq.
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A spike in share prices would carry the blue-chip Dow Jones industrial average(^DJI - News) to new year highs, holding it above the psychologically key 10,000 mark, which it closed above on Thursday -- for the first time in nearly 19 months.
Futures contracts on the broad Standard & Poor's 500 Index (CBOE:^SPX - News) rose about 1 percent on Sunday evening, topping what traders regard as fair value, indicating pent-up demand for stocks and a higher open at the next trading session.
"There will be some early applause from Wall Street, but it will be subdued because there is a long road ahead," said Hugh Johnson (News) , chief investment officer at First Albany Corp. "It does not signal the end of terrorist attacks both around the world and in the United States."
Stocks have risen sharply since the start of U.S. military operations in Iraq in March, propelled by signs of a reviving economy and higher corporate profits. Since closing lows on March 11, the Dow is up 33 percent and the technology-focused Nasdaq Composite Index (NasdaqSC:^IXIC - News) is up 53 percent.
Some say uncertainty and the cost of occupying Iraq have held stocks back from greater gains.
"Initially, there's little doubt that it's a boost for the market," said Milton Ezrati, senior economic strategist at fund manager Lord Abbett & Co. "A major uncertainty has been removed, and it also gives hope that this situation, on a fundamental basis, will improve.
"In the end, the market is going to look at the financial situation, and that will depend on the United States' ability to transfer power and withdraw and relieve the financial strain of this whole exercise."
Some say the upside for stocks may be limited, as each of the main indexes have hit year highs in the past two weeks.
"We might see a pop," said John Davidson, president of PartnerRe Asset Management. "Stocks are pretty fully valued, so whether this results in a sustainable rally from here is in question.
"It might put a temporary pause on the rise of the euro," he added, noting that capture of the former Iraqi leader should at least lower the risk of attacks against the United States, which had been weighing heavily on the dollar.
"There is a risk premium in there for terrorism against the U.S. and this takes a little of that out," Davidson said.
Nevertheless, global turmoil and concerns about terrorism did not take a holiday as a result of Saddam's capture.
On Sunday, a key ally in the U.S.-led war on terror, Pakistan's military President Pervez Musharraf narrowly escaped an assassination attempt when a bomb tore up a section of road seconds after his convoy had passed by, officials said.
No one has yet claimed responsibility for the blast.
But Musharraf has angered Pakistani Islamic militant groups by yanking support for the Afghan Taliban and siding with the U.S.-declared war on terrorism after the Sept. 11 attacks on the United States in 2001.
Musharraf has led a nationwide hunt for al Qaeda suspects that has captured hundreds of guerrillas, many of whom have been handed over to U.S. custody. The hunt goes on for al Qaeda mastermind Osama bin Laden, believed by some to be along the Afghan-Pakistan border. But Khalid Sheikh Mohammed, also suspected of being one of the chief architects of the Sept. 11 attacks, was caught in Rawalpindi earlier this year.
WALL STREET'S MOOD IS BRIGHT
On Wall Street, spirits are already high after the Dow held onto its five-figure finish at Friday's close and investors look forward to closing out the market's first winning year since 1999.
Last week, the Dow climbed above the 10,000 mark and the Standard & Poor's 500 hit an 18-month high, thanks to broadly good economic signs and the U.S. Federal Reserve commenting that inflation is not a problem, suggesting that it won't raise rates for some time to come.
For the week, the Dow Jones industrial average rose 1.82 percent to 10,042.16, its highest closing level since May 24, 2002. The S&P 500 gained 1.19 percent for the week, to 1,074.14, its highest close since May 28, 2002.
The Nasdaq finished the week up 0.57 percent at 1,949, below the 2,000 level it broke through briefly the previous week.
For the year, the Dow is now up 20 percent, the S&P 500 is up 22 percent, and the Nasdaq is up 46 percent.
Sparse earnings this week feature tech bellwether Oracle Corp. (NasdaqNM:ORCL - News) on Monday.
Among economic data, investors will focus on Tuesday's Consumer Price Index, due at 8:30 a.m., for the latest read on inflation. (Additional reporting by Brendan Intindola in New York)
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