Why stock market shifts in sync with war in Iraq

Military commanders talk about the "fog of war." On Wall Street, the war has resulted in a fog for investments as economic news is now secondary to battlefield developments on the Iraqi sands.

The emphasis on war news now means that stock traders look over their shoulders at television screens showing images of jet fighters taking off. MBAs are studying maps of Iraq as well as balance sheets. Some Wall Street firms are listening to retired generals explain the meaning of military moves. And some traders are turning to websites run by war buffs who provide almost instant analysis of the military thrusts and feints.

It all shows how enmeshed Wall Street has become with the war - and why the stock market at the moment is as volatile as the grit-laden weather of Iraq.

While conflicts have always driven fluctuations in the stock market, analysts say the psychology of Wall Street today is more intimately attuned to the day-to-day developments in the war than perhaps at any time in the past.

That's because news about the war is so ubiquitous - and it's news that investors believe will impact not only the direction of the faltering economy, but also the status of the US in an energy-driven world.

"The prospect of war and Iraq were a large driver for many months, but now with it really happening, it has become almost the sole factor driving the market," says Scott Jacobson, an investment strategist at Jefferies & Co. in New York.

Recent gyrations show just how much the market is patterning the war. The day after the war started, investors bid stocks up as reports came in that the US may have killed Saddam Hussein, his sons, and some of the top Iraqi leadership. Once it started to look as if Mr. Hussein had survived, the market sold off.

All this has created unusual volatility. Overall, the market last week had its best week in 20 years as the Dow Jones Industrial Average soared 662 points. But on Monday, the Dow dropped 307.29 points. On Tuesday, the market turned around yet again, with the Dow rising 65.55 points.

"There is a lot of angst going around: It's hard to find the proper guidepost," says Duncan Richardson, chief equity investment officer at Boston-based Eaton Vance, which manages $14 billion in stock investments.

Of course, this is not the first time the markets have reacted to war news. In 1972, during negotiations to end the Vietnam War, the market soared when rumors swept the trading floor that "peace was at hand." Later, when the rumors were denied, stocks fell.

During the first Gulf War, investors were tuned into CNN. But this time, it's quite different. Television crews are traveling with military units, and retired generals are interpreting the information immediately.

In addition, investing itself has somewhat changed, as many more Americans are keeping close tabs on stocks.

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