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The mood on Wall Street is improving, albeit slightly.  General market improvement comes ahead of the economic reports provided by the government that substantially reflect the view that the lead-up to the war with Iraq had a significant dampening effect on the economy.  Investors seem more optimistic as they learn that many companies are reporting better-than-expected earnings.

Seemingly, the war and its commensurate uncertainties no longer hold such sway over the market.  However, that could change in a moment.  Focus has shifted to factors investors are more accustomed to addressing, like earnings.  The season when companies report their quarterly earnings is upon us.  So far, 33 companies that comprise the S&P 500 index have reported.  The next two weeks are the busiest of the season with over 300 large companies reporting their first quarter earnings.  Outside of General Electric today and Yahoo! this past Wednesday, there were no earthshaking earnings reports this week.

The proof of the negative impact of the war on the economy came this week as the government released several major historical indicators.  Both manufacturing and non-manufacturing sectors showed rather dramatic contraction, to levels not seen since October 2001.  Both business leaders and consumers alike continue to delay their investment and spending decisions in the face of the Iraqi war. 

In just a week the faint signs of optimism have succumbed to the brutal realties of war.  It is not clean and it rarely, if ever, goes according to script.  Investors are realizing that they likely allowed excessive optimism to get ahead of reality.  The war will take longer than earlier hoped. 

Stock market history can be very useful as a guide in developing portfolio strategy, but it should never be used as a precise predictor of the future.  It repeats itself, just not in the same way or at the same time.  In 1990, the S&P declined over 20% in the weeks following the invasion ofKuwaitbyIraq.  But it did not rally in 1991 until it became clear to investors that the coalition forces would be successful in turning back the Iraqi invaders.  The S&P increased by 18% in just three weeks following the market low on January 15,1991.  This time investors did not even wait for the war to start.  In the past seven days the S&P 500 and the Dow Jones Industrials indexes have risen over 5%.  Global markets are reacting positively as well. 

Hardly anyone would disagree with the premise that Mr. Market has been unusually emotional these past three years.  But the last couple of weeks have demonstrated just how emotional investors can get after a prolonged bear market.  The drone of bad news has been like a vise, applying increasing emotional pressure almost by the hour.  One negative development after another has pounded stock values down and risk-averse investments up. 

The week’s economic releases were, to say the least, mixed.  The worst of it came this morning as the government reported that theU.S.economy lost 308,000 jobs.  Some of these losses are likely attributed to the call-up of reservists, but certainly not the majority. 

The information age in all of its glory is alive and well in spite of, perhaps even because of, our current economic and political malaise.  During the 1991 war with Iraq, CNN benefited handsomely as the pioneer 24-hour cable news network.  As we again prepare for war withIraq, some six 24-hour national news networks crowd the viewer’s choices along with a myriad of newspapers, websites, and internet news services.  We can now watch and listen to reporters in every newsworthy (or what their producers deem newsworthy) corner of the world, on demand. 

High terror alerts across the nation have likely negatively impacted our economy of late, but the numbers from January look pretty good.  TheU.S.consumer continues to support this economy to the amazement of many economists.  Retail Sales excluding autos rose 1.3% last month, according to the Commerce Department.  Building materials, higher gasoline prices, and higher prices on imported goods helped boost the index.  Retail sales represent 30% of the U.S.economy.  

 “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.” Charles Dickens’ Introduction to A Tale of Two Cities – 1859, comparingLondon andParis at the time of the French Revolution (1789-1799)

This week we mourn the deaths of seven national and international heroes while celebrating their high achievements with those of the space program.  We laud the program’s proud history of excellence during the cold war competition later adapting to the new world order to become a model of international cooperation.