Politics to Call Tune for Stocks
Saturday February 22, 7:36 am ET
By Nicole Maestri
NEW YORK (Reuters) - Politics may upstage economics on Wall Street next week as the uncertainty over whether the United States will lead a military strike on Iraq keeps investors on edge and dictates the market's direction.
Expectations for war are growing. The United States and Britain continue to amass troops in the Middle East, with the United States saying it has enough troops in the region to attack Iraq. Meanwhile, Turkey signaled on Friday it was close to a deal to let U.S. forces deploy on Turkish soil for a possible attack on neighboring Iraq.
"The market is going to continue to focus on basically the geopolitical problems and, of course, the rising price of oil," said Peter Cardillo, chief strategist and director of research at Global Partners Securities Inc. "The main focus of attention remains and will remain Iraq until there is clarity."
The prospect of a war could move closer to reality next week. Washington and London plan to present a new resolution to the United Nations Security Council saying Iraq is in "further material breach" of a U.N. disarmament resolution, which the two allies argue is sufficient justification for war.
The beating of war drums means next week's slate of economic figures set for release will take a back seat in trading action to the unfolding geopolitical situation.
"The market's direction will be dictated by geopolitical events, not the economic events," said Stanley Nabi, managing director at Credit Suisse Asset Management, which oversees $55 billion in North America.
SWING LOW, SWING HIGH
Stocks finished the week higher after staging an impressive rally Tuesday. Markets were closed on Monday for the Presidents Day holiday.
Tuesday, the Nasdaq Composite index (NasdaqSC:^IXIC - News) jumped 36.37 points, or 2.78 percent, to 1,346.54, erasing its losses for the year.
The rally faded Wednesday when war fears returned to the fore, and investors looked past an upbeat economic report showing low mortgage rates helped U.S. housing starts rise unexpectedly in January.
"It's very clear the imminent outcome of Iraq has got everybody concerned, and it's halting business in this country," said Philip Dow, director of equity strategy at RBC Dain Rauscher. "The only thing that could change is when we do get some visibility."
For the week, the Nasdaq Composite Index (NasdaqSC:^IXIC - News) gained 2.96 percent, the Dow Jones industrial average (CBOT:^DJI - News) rose 1.38 percent, and the Standard & Poor's 500 Index (^GSPC - News) added 1.59 percent.
"The market may be fairly valued at this point, but priced into it is an awful lot of uncertainty with respect to Iraq," said John Davidson, president and chief executive officer of PartnerRe Asset Management, which oversees more than $5 billion in assets.
War worries have driven oil prices up to 2-1/2-year highs. On the New York Mercantile Exchange, crude oil for April delivery gained 84 cents to settle at $35.58 a barrel, still in the neighborhood of the $37-a-barrel mark that recently set nerves on edge. In London, benchmark Brent crude oil for April delivery rose 71 cents to end at $32.28 a barrel, again within shouting distance of a two-year high of $33.10 hit last week.
"There are a lot of industries sensitive to oil prices, and we have extraordinarily high oil prices across the board," Davidson said. "If they persist for a long time, they are equivalent to a tax on consumers as well as businesses."
A FULL PLATE OF ECONOMIC DATA
Next week's slate of economic figures will give a read on everything from consumer confidence to the housing market to durable goods.
"Even if there is good news, people say it can't really be good news because of all of the geopolitical risk," said Dow of RBC Dain Rauscher. "There's just this negative cast to everything."
A reading on February's Consumer Confidence Index (News - Websites) is due on Tuesday. The index fell to a nine-year low of 79.0 in January, the Conference Board said, and analysts expect it to slip to 76.8 in February. Also set for release Tuesday are January's existing home sales figures, which are pegged to decline from December.
Thursday reports are due on weekly jobless claims, expected to drop from the week before, and new home sales for January, which are expected to slip from December levels. January orders for durable goods, which include computers, cars, office equipment, washing machines and other items meant to last three years or more, also will be released on Thursday. Economists polled by Reuters have forecast overall U.S. durable goods orders for January to have risen 1.2 percent, in contrast to a revised reading of down 0.2 percent for December.
On Friday, Wall Street gets a reading on U.S. gross domestic product, which measures total economic output within the nation's borders. It is expected to be revised up to an annual growth rate of 1.0 percent in the October-December period from an advanced reading of a gain of 0.7 percent.
Friday also will bring a final reading on the University of Michigan's consumer sentiment data for February, which is expected to slip to 78.9 from 82.4.
(Additional reporting by Denise Duclaux in New York)
Wall St. Week Ahead appears weekly. Comments or questions on this one can be e-mailed to Nicole Maestri at nicole.maestri@reuters.com
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