Uncertainty over war effort hits markets hard

After a massive sell-off in US stock markets this past week, analysts are looking for any sign that the market will stabilize.

"We are very close to a market bottom," says Robert Dickey, managing director and technical analyst for investment house Dain Rauscher Inc. in Minneapolis.

Mr. Dickey believes the Dow Jones Industrial Average - perhaps the best-known market indicator - could get back to the 10000 to 11000 point range in six months to a year, once that bottom in reached.

But uncertainty is helping to hold stock prices down, as investors wait for some type of military response to the terrorist attacks on the World Trade Center and the Pentagon. A rebound could start, once there is a direct engagement by US forces, Dickey says.

The upswing "will be a long process, but it will occur," he says.

Hammered by uncertainty, along with lower estimates of corporate earnings and new announcements of layoffs, the market fell sharply for the week ending Sept. 21. The Dow fell 14 percent last week, the biggest percentage decline since 1933. The technology-oriented Nasdaq composite dropped 16 percent and has now fallen 72 percent since its peak in March 2000.

Major overseas markets in Europe and Asia also continued their southward slide, based on concerns about the extent of military combat, as well as growing perceptions that the US may not be able to avoid slipping into recession - if it has not done so already.

The market's downward spiral may not be quite over, analysts caution. But they also draw a distinction between the somewhat grim short-term market - that is, the direction of the market over the next three to six months - and better prospects for the "long-term" market, from the middle of 2002 and beyond.

In testimony to Congress last week, Federal Reserve Chairman Alan Greenspan drew a similar distinction for the overall economy. Although the economy, he said, is now stalled, he cautioned lawmakers against enactment of a large stimulative program. Rather, he said, lawmakers should wait to see how the market fares in the weeks and months ahead.

For now, however, the market trend is "downward," says Arnold Kaufman, editor of The Outlook, a financial review published by Standard & Poor's Corp.

"The past few weeks have exhausted a lot of the negativism" among investors, Mr. Kaufman says. "But that may help clear the air for recovery."

If the market can close up one-day - or only suffer small losses for a day or so - that could be considered a victory of sorts, preparing the way for reconstruction, he adds.

So far, there are few happy campers within the universe of stock sectors. "Pharmaceuticals were looking good early last week, but now they are falling, along with just about everything else. Medical-supply firms are holding up, however," Kaufman says.

"Until something happens that is very positive, the direction appears to be downward," says Larry Wachtel, a vice president with investment house Prudential Securities Inc.

The revisions to corporate earnings - with more and more companies downgrading their prospective earnings - are hurting the market, he says. Also, layoffs could get "even more vicious."

Dickey, for his part, likes healthcare stocks, consumer nondurables such as household products, food stocks, and energy. "They tend to do well in the early stages of a recovery," he says.

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