Daniel Gross’s profile of Wall Street’s war bullishness in Slate raises an interesting issue: to what extent is this week’s bull run a vote that this war is good for the U.S. economy? Gross argues that essentially, it’s 90s-style herd mentality returning:
In this odd time - war declared but not yet started - the first casualty is the fundamentals. Market watchers had long predicted that the market would rally once the uncertainty about war in Iraq was resolved. When the Bush administration ended the doubt with its Monday ultimatum, a massive rally followed. The S&P 500 rose 3.54 percent and the Nasdaq rose 3.88 percent. The rise was particularly impressive since it came in the face of the sort of data that, in ordinary times, likely would have dragged the indices down.
Like I’ve argued before, the leftist notion that this war is being pursued for profit just does not hold. What the rising prices of the last couple days’ trading likely reflects is the conventional wisdom (see this analyst’s take for instance) that nothing fundamental about the economy is wrong, it’s simply that markets are made jittery by the uncertainty of war. It doesn’t matter if the conventional wisdom is wrong or even that some investors or analysts disagree with it. In the short run, the market follows that direction. As Gross notes, “On Monday, when the rising tide lifted even leaky boats, it seemed like 1999 all over again.”
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