- The Washington Times - Saturday, March 22, 2003

The stock market continued its dramatic comeback yesterday, with the Dow Jones Industrial Average surging 235 points in its eighth straight day of gains.
The Dow's best winning streak in seven years, and its best week in more than two decades, left it nearly 1,000 points higher, at 8,522. Other major indexes also posted sizable gains during the week, erasing their losses for the year. The technology-driven Nasdaq Composite Index is up 6 percent since Jan. 1.
Yesterday, the market took off on news that American troops secured Iraq's critical southern oil fields after minimal damage from fires, stoking another big drop in oil prices, to $26.91 a barrel, that promised to breathe life into the battered U.S. economy.
Markets also got a boost from rumors that Iraqi President Saddam Hussein was wounded or dead and signs that his lieutenants are starting to crack under the overwhelming firepower of U.S.-led forces.
"It's been as positive as we could have imagined," said Mark Keller, investment strategist at A.G. Edwards, who noted that this week's military action greatly diminished some of the biggest threats to the economy that could have arisen from an Iraq war.
Oil prices dropped 24 percent this week in New York trading, the most since 1991, and are down by one-third from highs near $40 seen late last month. Such a dramatic reduction in record-high energy prices acts as a big tax cut for U.S. consumers and businesses.
"What we've seen, in my opinion, over the last several days is a great sigh of relief" from investors as their worst fears of oil prices of more than $50 a barrel and a double-dip recession were eased, Mr. Keller said.
With airfields in western Iraq, from which previous missile strikes against Israel were launched, apparently captured, another worst-case scenario an Iraqi attack on Israel in retaliation for U.S. strikes also appears less likely now, he said.
"Drawing Israel into the war would be an escalation no one wants to see" because of its potential to rock the world politically and economically, he said.
But other adverse developments, such as whether Iraq uses weapons of mass destruction against U.S. and British troops, or whether its Arab allies retaliate by staging a terrorist attack on American soil, could cut short Wall Street's dramatic rally, he said.
"Wars are like a visit to the dentist. Sometimes what is feared is greater than the reality," said John Silvia, chief economist with Wachovia Securities. He said the importance of the seizure of about two-thirds of Iraq's oil fields by allied forces cannot be overstated.
"For enemies of the U.S. economy, oil is the weapon of choice," he said, noting that an oil-price shock has been associated with each U.S. recession since 1970. "This weapon may be decommissioned" if the U.S. succeeds, he said.
If a U.S. victory not only brings more rationality to the oil market, but also to the politics and economies of the Middle East, he said, the dividends will multiply for the United States and the world at large.
"The military campaign has shown signs of being more successful than the Persian Gulf war of 1991," said Larry Wachtel, market commentator with Prudential Securities, noting that ground forces have met with only sporadic opposition, leading to predictions that troops could reach Baghdad by early next week.
"Admittedly, once we get past the military drama, we are still faced with an economy that has major problems like overcapacity, a strained consumer balance sheet and huge budget deficits," he said. "But the ability to deal with these problems had been hampered by the buildup to war."
While the stock market and the dollar benefited this week from renewed confidence that the war will be successful and the economy will rebound from a wrenching winter, safe-haven instruments such as gold and bonds received a drubbing, Mr. Wachtel said.
Treasury's 10-year notes, the preferred investment throughout the three-year bear market in stocks, saw their biggest weekly drop since December 2001. Gold prices fell to $326.10 an ounce after hitting a high near $390 last month.
The dramatic shift in the markets reflects the more optimistic outlook for the economy, which lately has been overshadowed by worries about war and high oil prices.
"Our economic environment could already be seeing major change," said Lynn Reaser, economist with Banc of America Capital Management. "Falling energy prices, rising stock prices and growing optimism could all help to unlock the U.S. economy's potential."
But the next few days could be critical in determining whether the upbeat mood can be sustained, she said, noting that even President Bush has sought to deflate some of the rosy predictions from stock analysts that the war will be over by month's end.
White House spokesman Ari Fleischer repeated Mr. Bush's caution about the costs of the war yesterday. "It's important for the American people to remember this still can be a long, lengthy, dangerous engagement," he said.

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