With American casualties and Iraqi opposition mounting over the weekend, the stock market could be susceptible to a pullback after its recent big advance, strategists said Sunday.
"Because we have seen more resistance from Iraq than a lot of people had been anticipating, we may see profit-taking sooner rather than later," said Standard & Poor's equity strategist Sam Stovall in New York.
On Friday, a 235-point rally pushed the Dow Jones industrial average's gain over the last eight trading sessions to more than 13%. Other major U.S. stock indexes and many markets in Europe also have risen sharply. Meanwhile, gold and oil prices have tumbled to multi-month lows and Treasury bond yields have jumped by more than half of a percentage point.
At least part of the rally was due to investor relief that the uncertainty over whether there would be a war in Iraq had been resolved. But some of the enthusiasm was clearly a reaction to early reports of progress by the U.S.-led coalition forces, which fed hopes that war could be over quickly -- perhaps in as little as a week.
Those hopes may be fading somewhat. Over the weekend, President Bush and other U.S. officials told Americans not to expect an easy triumph and warned of fierce fighting ahead. Investors also were digesting reports of more coalition casualties and the capture of several U.S. soldiers by the Iraqis.
"In Friday's trading, it was obvious that nobody wanted to be caught short going into the weekend, especially with all the rumors about Saddam Hussein possibly being injured or killed," Stovall said, noting the high volume accompanying the Dow's climb to 8,521.97.
"Now everyone can see that the war is not going to be a cakewalk, which is a sobering thought."
Still, he said, "the general trend is going to be up unless we have some major developments that set back the American cause."
Subodh Kumar, strategist at CIBC World Markets in New York, agreed.
"The key issue that's been driving stocks higher while hurting bonds, oil and gold is that the impasse over what to do about Iraq is now over," he said. "Clearly, however, it's going to take the U.S. armed forces some time."
Although war news will dominate the markets in coming days and weeks, the longer-term issue confronting investors is the health of the U.S. economy.
According to the bullish case, a quick and decisive victory over Baghdad would give American consumers and businesses a much-needed confidence boost.
