The war in Iraq is over, thehostilities have ceased, andnow the real work begins.The hunt for chemical weaponsgoes on, and stories trickle in dailyabout Iraqi atrocities. Recent reports highlight billionsof American dollars discoveredin vaults in Iraq. Just before thestart of hostilities, Hussein had over$1 billion in US currency transportedout of the country by a convoy of18-wheeled trucks. Money clearlyhas no political affiliation.
In any event, the rebuilding ofIraq and the building of peace willtake center stage as President Bushenjoys a moment in the light of success.Very shortly, the president willturn his attention to the US economy,and next year's elections.
ELECTION SEASON STARTS
USS Abraham Lincoln
So begins the war on increasingUS prosperity, along with the startof 2004 elections. President Bush'striumphant arrival on the flightdeckof the aircraft carrier had Democrats cryingin their sleep. Needless to say,Bush's critics will attempt to findanything to complain about. Already,daily comparisons to hisfather's failures after the Gulf Warare being made. Some are complainingthat President Bush had forgottenthe war on terrorism and wasattempting to settle old scores bystarting a war with Saddam.
But President Bush isn't hisfather. This is not 1992, and a third-partycandidate has not appeared.Perhaps politicians and media typeshave distorted memories. Back in1992, President Clinton won theelection with 42% of the vote. Thusthe '92 election wasn't so muchabout a repudiation of the formerPresident Bush, but perhaps moreabout a split of the vote.
MARKET'S BAG IS MIXED
Investors saw the quick end ofIraqi hostilities as a good reason tobuy stocks. Market averages consequentlyscored several back-to-backwinning sessions, adding to a 4-week climb. Analysts and investorsrejoiced that the victory in Iraqwould lead to a much brighterinvestor confidence and a pickup inconsumer spending.
But business spending remains awild card. While consumers havebeen resilient for months, big businesshas shown a propensity to doabsolutely nothing. Still, as the firstquarter's numbers were released,corporate profits increased as twothirds of the reporting 500stocks announced better earnings.
Looking closer at the 500 reveals some interesting divergences.Energy stocks as a wholesaw earnings jump up over 13.2%,while revenues climbed 9.9%. Withenergy earnings factored out, theremainder of the 500 hadearnings increases of only 6.3%,with revenues up 6.8%. Clearly,higher energy prices at the gaspumps helped the profit outlook.
Another fly in
Recently, though, the price of oildropped almost $14 per barrel fromthe recent highs to a level of about$25. This drop may be a big help todisposable income, and will act likeanother tax decrease. The fear of contaminationby the deadly sudden acute respiratorysyndrome (SARS) virusand its contamination has businessslowing all over the Far East. If thishappens in the United States, allbets for any recovery are off.
ENERGY STOCKS LEADING
Energy stocks were the big winners.Last year's price spikes flowedthrough directly to the companies'bottom lines. Exxon-Mobil (XOM)reported earnings over $7.04 billion,bought back $1.19 billion inshares, and increased its dividend8%. Exxon's dividend is now closeto 3%. Chevron-Texaco (CVX)was upgraded by BancAmericaafter the company reported earningsof $1.9 billion, more than doublingthe $725-million earningsduring the same quarter last year.CVX yields over 4%.
Energy trading/natural gas companiesscored impressive gains fromtheir severely oversold conditions oflast year. Stocks like WilliamsEnergy (WMB), Mirant Inc (MIR),and Dynergy Inc (DYN) recentlysaw their shares explode higher astheir business outlooks improvedfrom the near-bankruptcy statusmany of them approached last fall.DYN was as low as 50 cents; MIRhad a low of $1.06; and WMB had alow of 78 cents. Clearly, aggressiveinvestors who assumed serious riskby buying these stocks last year didwell by betting against the grain.
Stock prices have made new yearlyhighs. Helping lead the averageshigher this spring were oil, energy,electric, auto, financial, utility, andselected hi-technology companies.Though most airlines are still sufferingfrom the effects of September 11,the industry fared better as the Iraqiwar came to a conclusion.
American Airlines (AMR), onceone of the largest and most influentialairlines, sat near the brink of obscurityback in March, as unions battledwith management over wages andbenefits. A few months ago, AMR'sstock was near $1, but moved to aclose of around $7 last month. However,just as management thought ithad obtained concessions from theunions, it found itself back in the hotseat. A deal was disclosed that rewardedupper management multimillion dollarbonuses for 2005. AMR's presidentapologized, but, in return for hisgreed and lack of concern, was quicklyreplaced. This shocking news hasled to discussions on Capitol Hillabout the financial greed that stillgrips corporate America.
Financial stocks also found theirshare prices moving higher. Providian(PVN), a provider of credit cardbusiness, saw a nice increase from ayearly low of $2, as the outlook forthis company improved. Large bankstocks and insurance companies havealso done better. The markets faredbetter over the past 2 months, andthe outlook for an improving economyhas investors' faith and hopepushing stock prices higher.
Ernest Caponegrois a New
Jersey-based registered representative
affiliated with First
Montauk Securities, member
NASD/SIPC. He welcomes
questions or comments at
888-786-9507. Any opinions expressed are
the author's and do not necessarily reflect
the opinions of First Montauk Securities or
those of its officers, directors, or affiliated