Markets & Stocks
Relief rally, but...
Stocks soar to best gains of year as investors bet on Iraq war delay, but gains may be short-lived.
March 14, 2003: 2:38 PM EST
By Alexandra Twin, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Stocks scored their best gains of the year Thursday on hopes a war with Iraq will be delayed, but the party may prove short-lived as jittery investors await a host of economic reports due Friday.

The Dow Jones industrial average (up 19.61 to 7841.36, Charts) jumped 3.6 percent and the Nasdaq composite (down 5.39 to 1335.38, Charts) soared 4.8 percent -- easily their biggest percentage gains of 2003 -- while the S&P 500 index (down 0.93 to 830.97, Charts) added 3.5 percent. All three indexes had hit fresh five-month lows Wednesday.

Meanwhile, Treasury prices tumbled along with oil and gold. The dollar rallied. Treasury bonds and gold had been sought by investors as safe havens amid all the uncertainty about Iraq.

"I think the rally got started by news of the super-secret meeting with the Iraqi military this morning and just kept going from there," said Tom Schrader, head of trading at Legg Mason. "Everybody loves equities and the dollar today and everything else is down."

Unlike other recent rallies, this one was broader and on heavier volume, although traders cautioned there was little to indicate the move was sustainable.

"All the selling has been squeezed out of the market. It got down to the October lows and bounced," Michael Murphy, head of equity trading at Wachovia Securities, told Reuters. "I don't see a lot of enthusiasm on the buyers' side. It's more of an oversold bounce."

Analysts noted that many investors may not want to be exposed ahead of the weekend, so Thursday's rally may at least partially unwind Friday.

Investors will also weigh reports on producer prices, industrial production and consumer confidence. Much smaller gains are forecast for wholesale prices and industrial output, while confidence probably fell, according to economists surveyed by

Thursday's market

Fears about the global impact of a potential war with Iraq have slayed stocks for months. While Thursday's action gave investors some relief, the tremendous volatility of the last few months remains.

"A day doesn't go by when the market isn't on the most skittish and volatile path that I've seen in my 35 years at the Big Board," NYSE chairman Richard Grasso said in an afternoon speech. "What's driving that is the simple insecurity, or if you will uncertainty of outcome."

The latest Iraq news signaled that a possible war could be delayed and that it might be brief, with help coming from Iraq's own military. CNN, citing government officials, reported that "secret surrender" negotiations are under way to ensure the swift surrender of key Iraqi military units in the event of a military offensive.

Additionally, a United Nations Security Council vote on a U.S.-proposed resolution that would open the door for military attack on Iraq will be delayed until next week, U.S. officials acknowledged, or may be dropped altogether.

Members of the deeply divided Security Council continued to wrangle over what goals a resolution should set. France, which has veto power on the Council, Thursday rejected a British proposal that would give Iraq President Saddam Hussein a set of disarmament goals to meet within a short period of time. (For the latest developments, go to

Shares of a variety of big-cap stocks, both on the Nasdaq and the Dow industrials, moved higher, with Intel (INTC: down $0.37 to $16.98, Research, Estimates) and Sun Microsystems (SUNW: down $0.03 to $3.28, Research, Estimates) both gaining 7 percent, while Walt Disney (DIS: up $0.13 to $16.33, Research, Estimates) and Caterpillar (CAT: up $0.15 to $47.08, Research, Estimates) jumped 6 percent apiece.

Comverse Technology (CMVT: down $0.23 to $11.11, Research, Estimates) rallied 19 percent and was among the Nasdaq's most active issues. Late Wednesday, the company reported a fourth-quarter loss that was narrower than what analysts were expecting and said it expects to be profitable in 2003 if it can increase sales. Following the news, J.P. Morgan upgraded the stock to "overweight" from "underweight."

On the downside, shares of troubled Tyco International (TYC: down $0.46 to $11.83, Research, Estimates) tumbled 12 percent, and topped the NYSE's most-active list, after the company warned that fiscal 2003 results won't meet estimates. Tyco also said it fired the president of its fire and security division after it found accounting problems at the unit's European division.

Hewlett-Packard (HPQ: up $0.73 to $15.73, Research, Estimates) managed to recover most of its losses as the NYSE's second-most active issue. The stock had been down as much as 9 percent after the company said in an SEC filing late Wednesday that it had overstated its cash flow from operating activities in the first quarter of fiscal 2003 due to an accounting error. In a note following the news, Merrill Lynch said that while it believes the mistake is honest, the timing was bad due to the fact that Hewlett had disclosed segment accounting changes in its last filing as well.

Drugmaker Baxter International (BAX: down $1.89 to $19.71, Research, Estimates) tumbled 20 percent on news that the federal government has subpoenaed documents from the company regarding the deaths of patients who were using its kidney dialysis machines. Baxter also cut its earnings and revenue forecast for the first quarter and full year 2003, due to increased competition.

The early morning reports on retail sales and joblessness proved that the struggling economy is nowhere near out of the woods yet. But the market's fascination with Iraq proved so strong that traders were willing to overlook the data.

Some 420,000 Americans filed new unemployment claims last week, down from the previous week's revised 435,000, but still more than the expected 418,000 and well above the 400,000 benchmark that signals a weak labor market.

Those who lost jobs and those who still have them also spent less last month, driving retail sales down 1.6 percent in February, four times the decline economists had expected.

Market breadth was positive, with winners beating losers 12 to 5 on the New York Stock Exchange and 11 to 5 on the Nasdaq. Volume was 1.74 billion shares on the NYSE and 1.77 billion on the Nasdaq. It marked only the second session of strong volume after more than two months of finicky trading.

Adding support to stocks: oil prices sank, with light, sweet crude for April delivery falling $1.82 to $36.12 a barrel in New York. Gold tumbled $10.60 to $336 an ounce in New York.

The dollar rallied against both the euro and the yen, and Treasury prices tumbled, with the yield on the 10-year Treasury note rising to 3.75 percent.

Overseas, European markets soared while Asian markets closed lower overnight.  Top of page

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