Wizards, or windbags?

The sound of war drums has launched a flotilla of questions for most Americans.

Not least among them: How will the stock market - on which many workers place their hopes for a comfortable retirement - react?

There's never a shortage of credible-sounding forecasts from Wall Street's investment strategists. And the uncertainty of a looming war never fails to ratchet up forecaster chatter.

Because war is laden with variables, the talk is often contradictory.

Experts cite a long history of inconsistent market reactions to conflict. "Sometimes the market went down after war started, sometimes up," says Ken Tower, chief strategist for CyberTrader Inc., a research unit of Charles Schwab that has examined market reaction to wars. "The results often seem dependent on whether the outcome was a surprise or not."

Surprise is no stranger to market prognosticators. Only 1 in 10 highly qualified forecasters interviewed by the financial magazine Barron's a year ago, for example, correctly predicted that the Standard and Poor's 500, a broad measure of the US stock market, would end down for 2002.

Confronted with that reality, most strategists admit that they view their "announced target" levels for the market as informed guesses.

Observers are also quick to point out that while many strategists - both optimists and pessimists - are candid, some are "required" to be more consistently bullish to the public than they might be if they could speak anonymously.

"Much [Wall Street] research is generated by organizations that have a vested interest in selling something," says Ed Easterling, president of Crestmont Holdings, a hedge-fund management firm in Dallas.

"They are using that research to sell their products, so we need to recognize that that is the case," he says. "If we were getting our weather forecasts from an umbrella manufacturer, we would be very skeptical."

Still, many personal-finance experts agree, market forecasts can be worth listening to. The key: using them as you might use the Weather Channel in preparing a weekend trip - to monitor developing patterns while staying prepared for just about anything.

So how should investors review forecasts and research? "When we read research [or forecasts], we are trying to understand what the source is, how the research is being used, whether [it] is fundamentally based, and whether [it] is consistent with history or ... a distortion," adds Mr. Easterling.

So what's the current forecast?

Mr. Tower notes that the Wall Street consensus for the short term is that the market will rally sharply for two or three weeks when and if fighting starts in Iraq, and then be vulnerable to a decline. After that, experts turn to history.

Looking longer term, the Dow has risen more than 30 percent, on average, in the 18 months after "major events ... that precipitated war," according to Gibbons Burke at www.MarketHistory.com.

That includes the Spanish-American War, World Wars I and II, the Korean War, the Vietnam War, and the 1991 Desert Storm offensive that ended Iraq's occupation of Kuwait.

Mr. Burke notes that in the period following the Sept. 11 attacks, the market initially acted as it had in the past, but now after 18 months, the market is lower than in September 2001.

He believes the current military buildup is energizing only a small portion of the economy, so the bear market has outweighed any positive market impact so far.

"When war [in Iraq] happens or when the situation is resolved, we'll be watching to see how much money comes into the market," Tower says. "What we really need to see to have more confidence that the market is headed higher over the next two or three years is to have a rally that takes us higher than the late-November highs, when the Dow Jones Industrial Average topped 8900.

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