By Hope Yen
The Associated Press
NEW YORK - Many on Wall Street were alarmed by stocks' steep slide Monday, believing that investors would send stocks plunging after having underestimated how long the war with Iraq might last.
But the market's ability to largely sustain its levels since then might reflect a contrarian view - that, even if the conflict takes several months, stocks are still poised to move higher.
The Dow Jones industrials tumbled more than 307 points Monday after posting their best week in two decades and then fluctuated the rest of the week. Analysts were encouraged by the moderate tone of selling.
"What the market seems to be telling us is that people are remaining relatively optimistic," said Richard A. Dickson, senior market strategist at Lowry's Research Reports. "There's no urgency to sell, and a willingness to buy."
He noted in particular investors' refusal to panic Tuesday, when they instead sent the Dow up by 65 points, as well as blue chips' recovery from an early 144-point slide Thursday to close just 28 points lower.
Trading volume also has been light, indicating that investors were largely holding on to stocks even as U.S.-led troops approaching Baghdad were hampered by sandstorms and as news reports warned that the conflict could take months.
"It seems interest is fading in the market right now," Dickson said. "If people were really worried, given the huge run-up we saw in the previous week, we would see more on the downside. The fact we haven't is a positive."
The Dow snapped a two-week winning streak as investors realized the war might not be so quick after all. Investors also were disappointed Saddam Hussein had not been killed.
But after reacting with dismay Monday, investors were resilient. Some are starting to look at economic fundamentals, such as a better-than-expected reading on consumer confidence and strong housing sales this week, while others might be betting the war can be wrapped up in about a month.
"People now have more realistic expectations about the war than they did a week or two weeks ago," said Mike Kayes, chief investment officer at Eastover Capital in Charlotte, N.C. "As people watch more and more of the war each day, the casualties have less of an effect on stocks."
"Meanwhile, underlying corporate earnings look to be reasonable. I think stock valuations are reasonable," he said. "There's a lot of cash on the sidelines, so there's a lot more buying potential and demand for stocks."
Still, investors shouldn't expect big gains too soon. Analysts say trading will continue to be driven by the latest war headlines, likely leading to choppy, sideways movement in the coming weeks.
They also stress that the market likely won't have the same rally seen 12 years ago during the Gulf War, when the Standard & Poor's 500 index gained 17 percent after the first month.
"Those anticipating the market will go straight up are mistaken," said Doug Sandler, chief equity strategist at Wachovia Securities. "It's going to take a lot longer than '91."
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