Coalition soldiers escorting Iraqi prisoners of war. - Reuters
NEW YORK, (Reuters):
STOCKS SANK more than 3 percent on Monday as grim television footage from Iraq reminded investors the U.S.-led war to oust Saddam Hussein would not be easy and brought last week's monster rally to a screeching halt.
U.S.-led forces suffered their heaviest casualties so far over the weekend. Iraqi footage of U.S. prisoners of war rattled investors, whose bets on a lightning-fast U.S. victory had driven the blue-chip Dow up a hefty 13 percent in an eight-day surge.
"We're about to get into the nasty part of this war, and I don't think the American public or the American markets are ready for urban warfare in Baghdad where a bunch of our sons come home in body bags," said Jeffrey Saut, chief investment strategist at Raymond James Financial. "Not that I'm forecasting that, but it has the potential to roll out like that."
The Dow Jones industrial average skidded 307.29 points, or 3.61 per cent, to 8,214.68, notching its biggest percentage loss since September 27. All 30 Dow components fell - a sharp reversal of last week's surge, which marked the Dow's best week since October 1982.
The broad Standard and Poor's 500 index slid 31.56 points, or 3.52 percent, to 864.23, its biggest percentage decline since September 3. The tech-laced Nasdaq Composite Index tumbled 52.06 points, or 3.66 percent, to 1,369.78, based on the latest figures. The Nasdaq racked up its biggest loss since December 9.
Airline and hotel stocks tumbled as travellers stick close to home in the face of war. Delta Air Lines Inc. lost more than 15 per cent after becoming the latest U.S. airline to cut back flights. Starwood Hotels & Resorts Worldwide Inc. sank 10 per cent after withdrawing earnings estimates, saying the war had hurt business.
On Friday, the Dow jumped 2.84 per cent, the S&P 500 leaped 2.29 per cent and the Nasdaq climbed 1.31 percent. The Dow had its best week in more than 20 years as investors found hope for a swift end to the war in a firestorm of missiles and bombs raining on Baghdad.
The Dow and the S&P 500 are down for the year again, after pulling ahead on Friday. The Nasdaq is still up 2.6 per cent on the year.
"The market is pretty ugly," said Keith Keenan, vice president of institutional trading at brokerage Wall Street Access. "The harsh military realities are starting to set in, and the market is discounting a longer military conflict."
James Luke, portfolio manager for BB&T Asset Management, said he "found the market way too optimistic about the quick and surgical nature of operations and it's coming to the realisation that we are going to have a difficult and costly conflict. There is also stuff in the background with the economy being weak, but the real driver is the Iraq war news."
Government bonds jumped and gold prices soared as investors dumped equities in favour of save-haven investments. World oil prices rebounded by almost $2 a barrel from four-month lows as investors' hopes for a quick end to the war were dashed. In New York, crude oil for May delivery surged $1.75 to end at $28.66 a barrel.
Losers trounced winners by a ratio of 26 to 7 on the New York Stock Exchange and 3 to 1 on Nasdaq. More than 1.28 billion shares changed hands on the Big Board and more than 1.32 billion on Nasdaq in moderate trading.
Delta, the No. 3 U.S. carrier, tanked $1.73 to $9.52 after saying it will cut about 12 per cent of its flights, citing a slump in passenger traffic as a result of the Iraq war.
Delta is the last of the five largest U.S. airlines - which also include AMR Corp.'s American Airlines Inc., UAL Corp.'s United Airlines Inc., Northwest Airlines Corp. NWAC.O and Continental Airlines Inc. - to announce staff or capacity cuts, or both, in the last week.
All the leading airlines skidded, with the S&P airlines index tumbling 6.83 per cent. Continental fell US$1.17, or 17.2 per cent, to US$5.65, topping the New York Stock Exchange's biggest percentage loser list.
Sheraton owner Starwood Hotels & Resorts sank US$2.69 to US$24.11 after withdrawing earnings estimates. The S&P hotels index skidded 8.1 per cent. Theme park owner Walt Disney Co. led the Dow lower with a drop of US$1.34, or 7.2 per cent, to US$17.40.
Wal-Mart Stores Inc. fell US$2.15 or 3.9 per cent to US$52.52, pressuring the Dow. Wal-Mart said it still expects to meet its forecast for March sales at stores open at least a year, despite the "CNN effect" last week when potential shoppers were glued to televisions to watch coverage of the war with Iraq.
