Stock prices worldwide edged downward Monday as the gilded optimism of last week faded with more sobering news about fighting in the Persian Gulf.
The Dow Jones industrial average slipped 17.57, closing at 2,629.21. It was the first down day since war started last week with a series of successful air strikes on Baghdad.
Meanwhile, gold and oil prices--which tend to rise with bad news--gained sharply Monday. Defense stocks also staged a strong advance on speculation that the fighting in the gulf might last longer than previously expected.
The price of West Texas Intermediate, the U.S. benchmark crude, for February delivery rose $2.05 a barrel to $21.30 on the New York Mercantile Exchange. Gold prices, which also suffered a major setback during the first days of fighting, closed up $4.50 an ounce to $378.70 on the New York Commodities Exchange.
"The (stock) market is reacting to a big disappointment in the Persian Gulf," said Michael Metz, market strategist at Oppenheimer & Co. "On second look, it is clear that war in the gulf is not going to be a quick and painless affair."
Indeed, investment experts said last week's 145.29-point gain in the Dow Jones industrial average--the largest weekly point gain for the Dow--was largely fueled by optimism about the early successes of allied troops fighting Saddam Hussein.
Because Iraq's response was so slow, investors assumed that its military was crippled by early strikes, Metz said. Some apparently expected Hussein to give up.
That also fueled big drops in oil and gold prices last week, which had climbed since August on investor fears of a long, costly war. Oil prices have been particularly volatile because of threatened worldwide shortages expected if Iraq was able to strike Saudi Arabian oil fields.
"Now (Secretary of Defense) Dick Cheney says there is no sign that Hussein will capitulate. We haven't knocked out all his missiles. We have no indication that we've knocked out his air force. The market is in a whole different mode," Metz noted.
Added William H. Brown, an international oil analyst with Kidder, Peabody & Co.: "Over the weekend, people began to understand that this wasn't going to be a two- to six-day war."
However, other investment experts believe the drop in stock prices was at least partly spurred by selling by investors who wanted to take profits on shares that soared in value last week.
"I think what we have is some very orderly profit taking from last week's gains," said Jon Groveman, president of Ladenburg, Thalmann & Co.
Added Richard Bernstein, manager of quantitative analysis at Merrill Lynch: "We just had a big week, so you are bound to have some profit taking. And we also have a reasonable amount of uncertainty, and uncertainty creates volatility."
Whatever the reason, the United States was not the only market to experience a selloff.
In Tokyo, the Nikkei stock average dropped 456.11 to close at 23,352.19. In London, the Financial Times 100-share index fell 18.7 to 2,084.0. The DAX 30-share index dipped 14.86 to 1,390.20 on the Frankfurt exchange. And Paris' CAC index of 40 stocks slipped 6.70 to 1,553.57. Share prices also closed lower in Hong Kong, Johannesburg and Zurich.
Among the market highlights:
* Among the few bright spots for U.S. stocks were defense issues. Shares of Raytheon, which builds the Patriot missile system, gained 4 1/2, closing at 74 5/8. McDonnell Douglas, which makes F-15 fighters and Tomahawk missiles, rose 4 3/8 to finish the session at 36 1/4. General Dynamics, maker of the F-16 fighters, soared 4 to 29 1/4. And Martin Marietta, which also makes defense systems, rose 3 5/8 to 50.
* Delta Air Lines shares rose 3/4 to 67 3/4, and USAir jumped 1 1/8 to 19 3/4, as investors speculated about which carriers might benefit from Eastern Airlines' demise. Boeing, which is one of Eastern's biggest creditors, fell 3/4 to 48 1/2.
* Clorox lost 3/4, closing at 38 7/8, after it reported declining quarterly profits. And Consolidated Paper closed at 25, down 2, after reporting its net income also shrank.
* Amgen shares rose 3 7/8 to 69 3/4--a new high--because sales of its red blood cell stimulant were better than expected. However, the company posted a quarterly loss.
Overall, declining issues only slightly outnumbered advancers, and 136.29 million shares changed hands on the New York Stock Exchange. Friday's Big Board volume was 226.77 million shares.
The Standard & Poor's 500-stock index dropped 1.17 to 331.06. The New York Stock Exchange Composite index fell 0.49 to 180.38
The American Stock Exchange market value index edged down 0.03 to 303.93, while the NASDAQ over-the-counter composite index rose 2.71 to 379.70.
DEFENSE STOCKS SOAR Investors poured into defense stocks Monday on expectations of rising orders.
Mon. Point Pct. Stock close chng. chng. Gen. Dynamics 29 1/4 +4 +15.8% McDonnell Doug. 36 1/4 +4 3/8 +13.7% E-Systems 38 5/8 +3 1/2 +10.0% Martin Marietta 50 +3 5/8 +7.8% Loral 38 1/2 +2 3/4 +7.7% Northrop 20 5/8 +1 1/4 +6.5% Raytheon 74 5/8 +4 1/2 +6.4% Lockheed 37 1/2 +1 5/8 +4.5%