Quotes of the Day

With Hans Blix's Valentine's Day Iraq inspection report less than a week away and the size of the U.S. coalition still very much in doubt, Wall Street is still swathed in suspense — and still finding it unbearable. But what will happen once some clarity on Iraq comes to the markets?

"If someone shot Saddam tomorrow, my feeling is by the close of business the Dow would be closer to 9,000 than 8,000," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Same goes for a sudden coup or abdication. And while the "working assumption" on which economists and investment strategists are basing their forecasts these days is a bit slower-motion — a clean, quick three-week war that turns fast, Gulf-War style — Shepherdson says his point still stands. Whether it takes one session or several weeks, there's a rally in there waiting to be born, and when it's clear Saddam is going down, "stocks will take a big move up in a relatively short period."

So why haven't they gone up yet? If there's one thing Wall Street's stock and bond markets do incessantly, it's "price in" the odds and possibilities of every possible scenario, from Alan Greenspan's next move to Bill Gates'. This Street is paved with forecasts, what-ifs, educated bets and calibrated probabilities. With one Saddam scenario (the good one) so much conventionally wiser than the others — and at the very least a decent bet — how come stocks keep sputtering?

One reason could be because investors have been hurt before. "In the wake of the bubble, nobody wants to reach in and get their fingers burned," Shepherdson says. The pros have been wrong a lot lately (at least publicly) and the last thing Wall Street needs is to get fooled (or get caught fooling us) again. The bears who think stocks are overpriced and that war jitters is just a bad excuse, or that Saddam or Osama or Kim Jong Il has terrible surprises in store may or may not be right, but everybody remembers that they were sure right last time. "There's a lot of pessimists out there, and this time a lot of people are listening," Shepherdson adds. "I'm just not one of them."

Still, Wall Street, particularly when it comes to geopolitics and other things it has no control over, can get uncertainty in its eyes and retreat too far into the day-to-day trenches. Look down the road and you might be able to cash in. Just consider cashing out again fast — this isn't the dawn of the 90s all over again. "Stocks still seem overvalued to me," said Sam Stovall, chief investment strategist at Standard & Poor's. "Even if everything goes as we expect and the military conflict is over relatively quickly, investors need to retain their long-term viewpoint."

Stovall points out that price-to-earnings ratios for the S&P are around 28, even in t he market's current funk; historically, the long-term average is 17 — and 13 coming out of a bear market. "The bearish view is that we're about twice where we should be," he said. "With the economy recovering and the Iraq issue resolved, I still see stocks as being a better bet than bonds or cash," he said. "But I think we're looking at something on the order of mid-to-high single digits for the next couple of years."

Still, nobody's talking about a victory sell-off, and even if you hang on too long and find the post-war relief rally has evaporated, there's still not much chance of losing your shirt if you start buying at these, the October lows. "A floor has been put under share prices, and will basically trade slowly higher as valuations become more realistic," said Stovall. "The economy will continue to lead the market, and as 2003 goes on it should lead the market up."

A depressed market, a bankable rally in the not-too-distant future, and a floor under share prices? Well, here's the disclaimer: If it sounds foolproof?

• If this war ever gets going, everybody expects stocks to get a big bounce when it's over. Or will they?