Haiti Situation Is Unlikely to Affect Financial Markets Long-Term
Inflation, not foreign policy, is the biggest concern of Wall Street
WALL Street's focus: inflation, not Haiti.
Underlying economic fundamentals - particularly the question of whether or not the United States will experience a resurgence of inflation in months ahead - continue to drive the US stock market. Despite recent concerns about higher inflation, some Wall Street pundits talk about the possibility of stocks hitting new trading highs for both the Dow Jones industrial average and the Standard & Poor's 500 indexes.
US foreign policy considerations - especially the situation in Haiti - are not expected to be a major influence on financial markets. While a US invasion of Haiti could have contributed to a temporary drop or rise in the market, only a military misstep by the US would have any long-range impact on stocks, says Larry Wachtel, a vice president with investment house Prudential Securities Inc. in New York.
``Every day, newspapers have carried fresh headlines about Haiti,'' he says. ``Yet, the market has remained on the sidelines ... why should the market be any more influenced this week?''
As it turned out, however, a US invasion was averted Sunday night when an agreement was reached between the US and Haiti's military leaders.
``Generally,'' Mr. Wachtel adds, ``foreign policy considerations do not have a major effect on the market, unless they are very significant. Neither Panama nor Grenada affected the market, although the Persian Gulf war did have an impact. But the Gulf war was a major event, since US forces were facing the fourth largest army in the world.''
In the case of President Reagan's decision to send troops into Grenada in 1983 and the Bush administration's decision to send soldiers to Panama in 1989, market indexes barely blinked. In the Gulf war, however, the Dow had started to fall with Iraqi strongman Saddam Hussein's annexation of Kuwait in August 1990. Stock prices did not rally until after it was clear that the US-led invasion would be a military success, Wachtel says.
The Gulf war was important to the stock market, he says, because of the chance of a protracted military conflict. Moreover, the war had an underlying economic concern: Kuwait was a major oil producer.
In economic terms, Wachtel explains, Haiti has few ties with the US. It does not supply any major commodities to the US; and US-Haitian trade is minuscule.
What could be important about the Haitian situation, some stock experts here say, is how well President Clinton deals with the conflict over time. Mr. Clinton's leadership has come under criticism from some Wall Street analysts in recent weeks, following his difficulties in winning congressional approval of the crime bill. Having avoided an invasion, Clinton may regain some respect from Congress and the investment community for his handling of the crisis. But if US troops occuping Haiti as peacekeepers get caught in the cross-fire between political groups, then that could undermine Clinton's ability to muster support for health care and welfare reform.
``What the market most dislikes is uncertainty because uncertainty breeds weakness,'' says Gregory Nie, who heads up technical research for investment house Kemper Securities Inc. in New York. ``So far, there has been no real element of uncertainty in the Haitian situation.''
Factors most affecting the market, Mr. Nie says, are rising interest rates and questions about possible new inflation.
The market began to drop immediately after the decision by the Federal Reserve Board to boost interest rates in early February. But last week's US Commerce Department report showing only modest gains in the Consumer Price Index for August helped reassure the market that inflation - while rising at the wholesale level - is not yet breaking through to the broader economy. Lessened fears on the inflation front helped drive the market higher for much of last week, with the Dow briefly flirting with its all-time high of 3,978.36 points, recorded on Jan. 31, 1994.
Late in the week, the market did flounder, skidding downward for much of last Friday. ``But the Haitian situation had nothing to do with that turmoil,'' Nie says. Rather, the stock market followed the bond market, which was stunned by a new report showing higher-than-expected industrial production; the report triggered new worries about inflation among bond traders.
Whether stocks keep rallying this month is open to question. Historically, September has been difficult for stocks, with the market usually recording losses.