Markets Respond to the Moment of Truth

Physician's Money Digest, April15 2003, Volume 10, Issue 7

In President Bush's words, "themoment of truth" has arrived.It's official; we're at war. Marketsaround the world tumbled initially inresponse, but then rebounded as USmarkets soared up over 3%.The Dowhas moved up over 16% since thelows hit in October 2002. Even moreastonishing, the US markets were up7 days in a row, the longest winningstreak since the summer of 2000.TheDow has moved higher by 849 pointsfrom the lows of March 12 to 19.

WAR'S OIL INDEX

News of the start of war hadmarkets reacting predictably. Theeuro was up; US interest rates andgold went down. Oil prices continuedtheir slide, now down over 25%from the peak of roughly $40 perbarrel back in February. If history isany guide, as the war progresses andallied victory becomes more apparent,oil will continue its slide. Weshould start to see the benefits atour gas pumps shortly.

The markets will react to warevents daily, but should soon startto firm as they focus more on economicevents and less on the war. Atremendous amount of misinformationwill fly daily, adding to thevolatility. Oil will remain a barometer.The increase in oil prices hadbeen an extra tax on consumers, butif oil prices continue to decline, itwill help economic growth. Accordingto some Wall Street analysts,the $10 drop in oil pricesshould add a 0.5% increase in ourcountry's economic growth.

PEACETIME PROJECTIONS

As the focus shifts from "if warhappens," markets worldwide willlook toward the end of hostilities andwhich companies will benefit fromthe coming reconstruction of Iraq.

"Few companies can match thefirepower of Halliburton (HAL)when it comes to making moneyfrom the war in Iraq," according to areport from Reuters News Service.Halliburton, based in Houston,Tex,can build roads and bridges, transportpersonnel, and provide forother logistics. It can also put outany oil well fires and restore Iraq'sinfrastructure and oil production."While questions remain as to howmuch work will help boost HAL'sstock price, HAL's KBR engineeringand construction division isbasically the corps of engineers tothe US military," said Jim Wicklund,an analyst at Banc of AmericaSecurities, in a recent Reuters article.HAL played similar roles duringthe 1991 Persian Gulf War.

Other companies that could bidfor any oil firefighting contractsinclude Boots & Coots InternationalWell Control Inc (WEL),RPC Inc (RES), and SuperiorEnergy Services (SPN). WEL hasbeen on a wild ride over the pastfew weeks, as the company reportedin February that it could be forcedinto bankruptcy. Its stocks tradedaround 40 cents late last month, butas war drew closer the stock rose toover $2 on speculation that thecompany could get contracts. Giventhe fact that shareholders could bewiped out in a bankruptcy, thedemand for WEL was incredible,with over 125 million shares beingtraded. Needless to say, trading inthis stock is pure gambling.

ON THE DOMESTIC FRONT

New York Times

Philip Morris, which recentlychanged its name to Altria (MO),has seen a significant slide in itsstock. The reportedon March 18 that the US JusticeDepartment, alleging a half-centuryof fraudulent and dangerous marketpractices, is demanding that thenation's biggest cigarette makersforfeit $289 billion in profits. The 5companies under the Justice Department'sspotlight are MO, R. J.Reynolds Tobacco (RJR), the LoewsCorp's (LTR) Lorillard Tobacco,British American Tobacco PLC's(BATS.L) Brown & Williamson,and the Vector Group's (VGR)Liggett Group. MO stock fell tounder $33 from a recent high of $39just a few weeks back.

John Dorfman, president ofDorfman Investments of Newton,Mass, pointed out some valuestocks he likes right now. The listincludes: General Dynamics (GD),AT Cross (ATX), Crawford & Co(CRDa), and Sylvan Inc (SYLN).

Barron's

Patrick McKeough of the "WallStreet Stock Forecaster" newsletterwas quoted by as saying,"Interest rates are low and stockprices are cheap enough to believethat once the Iraq situation isresolved, the markets could experiencea nice bump.Overall, it's a goodtime to own a balanced portfolio ofwell-established stocks, provided thatyou spread your holdings out acrossthe 5 economic sectors." His sentimentsseem to echo what the marketspresently believe, as the Dow jumpedover 800 points in 7 recent sessions.Let's all hope and pray that the warwill be over quickly.

Ernest Caponegro is a NewJersey–based registered representativeaffiliated with FirstMontauk Securities, memberNASD/SIPC. He welcomesquestions or comments at888-786-9507. Any opinions expressed arethe author's and do not necessarily reflectthe opinions of First Montauk Securities orthose of its officers, directors, or affiliatedregistered representatives.