Analysis: Those seeking investment advice might be better consulting a military analyst, writes Cliff Taylor Economics Editor
Sometimes we believe that those trading in stocks and shares have more insight or knowledge than the rest of us and that financial market prices accurately reflect what is actually going on. The last few days suggest otherwise.
Buoyed by talk of a quick victory for the US-led forces, investors drove share prices sharply higher late last week, with Wall Street having its best week in 20 years. By the time they returned to their desks yesterday, the outlook was far less clear - and share prices in many markets had their worst day since September.
Over the coming days, market analysts will be giving most of their attention to the 24-hour news channels, with the normal flow of economic data taking second place.
Those seeking investment advice might be better consulting a military analyst than a stockbroker.
"The markets had been pricing war risk out and it has come back in the last two days," commented Mr Chris Johns, chief strategist with ABN Amro. This was evident in the oil market as well as equities, where prices rose by almost $2 a barrel.
Supply disruption from Nigeria due to ethnic unrest is also unsettling the market, although traders are reassured that there is so far little evidence of widespread damage to Iraqi oil facilities. This had been one significant pre-war fear which now seems to be easing, as US and UK soldiers take control of Iraqi oilfields. But analysts will remain wary that war and its aftermath could still affect the market in the weeks ahead.
Share markets, meanwhile, are unlikely to refocus on fundamental economic issues until the war is over, according to Mr Eugene Kiernan, head of asset allocation at Irish Life Investment Managers (ILIM). The markets were "supercharged" on Thursday and Friday of last week, he said. Evidence over the weekend that the war was not going as smoothly as some had predicted caused yesterday's falls.
ILIM, like many investment houses, now believes that equities are approaching reasonable valuation levels. Mr Kiernan warned that this issue of underlying value would not come into play until the uncertainty caused by war was ended.
A further complication for the markets is that the war uncertainty comes at a time of existing economic weakness. The US economy is balanced on a knife-edge, but would suffer if consumer confidence were to slump. Continental EU remains in poor shape The outlook for corporate profitability thus remains most uncertain.
For the moment, however, all eyes in the dealing rooms will remain on the TV screens. Having been caught out in their expectations of "a 100-hour war" - the length of the ground offensive in the 1991 Gulf War - investors will remain cautious and nervy in the days ahead. As one analysts in the US put it last night: "The reality is starting to set in that war is war."
