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Markets & Stocks
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Stocks face war, economy
Lingering war worries, Greenspan comments likely to be on investors' minds Tuesday.
February 10, 2003: 5:46 PM EST
By Meghan Collins and Malina Poshtova Zang, CNN/Money Staff Writers

NEW YORK (CNN/Money) - U.S. stocks managed to log modest gains Monday on renewed hopes of avoiding war, but the likelihood of more war developments and remarks from Fed Chairman Alan Greenspan on the state of the economy Tuesday could challenge investors' optimism.

The Nasdaq composite (up 14.21 to 1296.68, Charts) posted the biggest gain, rising 1.1 percent, while the Dow Jones industrial average (up 55.88 to 7920.11, Charts) rose 0.71 percent and the S&P 500 index (up 6.28 to 835.97, Charts) added 0.76 percent for the day.

Stocks have fallen for the past month amid fears of a military showdown with Iraq. The Dow Jones industrial average is down 5.7 percent for the year and 11 percent -- nearly 1,000 points -- below its high of the new year. The Nasdaq composite index is 4 percent lower so far in 2003.

"I think there was a lot of confusion in the market today," said Bill Roe, portfolio manager at Melhado, Flynn & Associates. "I think it's imminent that we are going to be going into Iraq. If (the United States) goes in and starts making more commitments, you'll see the market going up. Hopefully, we'll get some of this malaise out of the way."

Word from Iraq's U.N. ambassador, Mohammed Aldouri, that his country "unconditionally" accepted U2 surveillance flights and planned to enact laws to ban illegal weapons in hopes of avoiding conflict gave the market some footing. His statement helped lift stocks as a slim hope emerged that war could somehow be avoided.

The U2 surveillance flights had been requested by U.N. weapons inspectors in two days of talks with Baghdad over the weekend. Returning from the talks, Hans Blix, the chief U.N. weapons inspector, said high-level Iraqi officials are showing signs of better cooperation.

But President Bush responded that increased cooperation wasn't good enough and that the inspectors must see proof that weapons of mass destruction have been destroyed. (For the latest developments, go to CNN.com)

In addition to lingering concerns over a possible war with Iraq, investors will get a dose of the economy from Federal Reserve Chairman Alan Greenpsan Tuesday. Greenspan is scheduled to make semi-annual remarks to both houses of Congress, starting with the Senate Banking Committee Tuesday, on the state of the U.S. economy and monetary policy.

The day lacks any significant economic reports, but will see more corporate fiscal results. Insurer Aetna (AET: up $0.90 to $41.85, Research, Estimates) and chipmaker Applied Materials (AMAT: up $0.28 to $12.09, Research, Estimates) are among the companies set to report. Economists surveyed by Briefing.com forecast Aetna will post a profit of 59 cents a share, up from last year. Applied Materials is expected to report earnings of 2 cents a share, compared with a penny for the same period in 2002.

After the closing bell, online travel company Priceline (PCLN: up $0.14 to $1.39, Research, Estimates) reported a fourth-quarter loss of a penny, which came in narrower than the 2-cent loss expected by analysts.

Also, Scholastic (SCHL: up $0.16 to $33.66, Research, Estimates), publisher of the Harry Potter series of books, among others, warned that its 2003 profit would fall well below analyst estimates.

War worries linger

Wall Street's hopes that war might be averted rose on the news of the U2 flights and stock prices followed soon after. But the gains were limited by continued uncertainty over what will happen with Iraq.

"If we do go to war, probably as soon as the war begins the markets will take a lift, as they did in the Gulf War," said Michelle Clayman, chief investment officer at New Amsterdam Partners. "If it's short and successful, the markets could rise, but if it's not -- or if there are nuclear, chemical or biological attacks -- it could be negative for the markets. It would be a huge blow to confidence."

Adding to the uncertainty, NATO allies France, Germany and Belgium, in an effort to stall a possible war, vetoed NATO planning for the protection of Turkey in the event of a military conflict. But U.S. Secretary of Defense Donald Rumsfeld said the United States' plans to beef up Turkey's defenses would go forward as planned.

The U.N.'s chief weapons inspectors plan to give a second progress report on their findings and conclusions in the region to the U.N. Security Council Friday, and this added to investors' caution.

The market found no encouragement in news that sometimes-bearish Bank of America Securities strategist Tom McManus Monday raised his recommended stock allocation to 75 percent from 70 percent, and lowered his bond allocation to 15 percent from 20 percent (with the remaining 10 percent in cash).

Corporate news offers little relief

The lack of market-moving economic reports and corporate news also contributed to Wall Street's uninspired performance.

Analysts forecast the U.S. economy would expand 2.7 percent this year in the February issue of Blue Chip Economic Indicators, a closely watched newsletter. The group lowered its expectation slightly from its January report, when it forecast a 2.8 percent growth rate.

Among the sparse announcements, news that Johnson & Johnson (JNJ: up $0.20 to $52.04, Research, Estimates) is buying Scios (SCIO: up $1.72 to $43.92, Research, Estimates) for $2.4 billion in cash helped lift the biotech firm's stock about 4 percent after a nearly 22 percent rally Friday as reports of the deal first hit the market. Scios is the maker of Natrecor, a controversial drug for the treatment of congestive heart failure.

Meanwhile, satellite television operator Hughes Electronics (GMH: up $0.45 to $10.20, Research, Estimates) jumped more than 5 percent after it became known that SBC Communications (SBC: down $0.68 to $24.50, Research, Estimates) is negotiating the possible purchase of the company, a deal that could reportedly be worth up to $10 billion. SBC, a Dow component, was down about 4.5 percent.

Dow component United Technologies (UTX: up $0.31 to $63.98, Research, Estimates) reiterated its 2003 outlook of $4.55 a share to $4.80, compared with analyst expectations of $4.72 a share.

Bonds trended lower. The benchmark 10-year Treasury note fell 11/32 of a point in price, yielding 3.97 percent. The dollar made significant gains against the yen and rose slightly against the euro.

Among key commodities, light crude oil for March delivery fell 64 cents to $34.48 a barrel in London. Gold for April delivery fell $6.30 to $364.20 an ounce in New York.

Overseas, European stocks ended mostly lower and markets in the Asia-Pacific region closed their session mixed.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners 9 to 7 on volume of 1.2 billion shares. On the Nasdaq, gainers beat losers 9 to 7 on volume of 1.2 billion shares.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.