US stocks look set to stay locked in a volatile mode this week as investors keep a wary eye on security threats around the world and scan corporate announcements for hints on first-quarter profits.
On the anniversary of the US-led assault on Iraq, the mood on Wall Street appears to have turned fretful once again, after the bombings in Madrid.
It's a turnabout from the start of the war in Iraq on March 20, 2003, which ended the uncertainty that Wall Street hates so much and helped fuel a year-long rally in the stock market.
Each of the main indexes ended a choppy week on the downside last Friday, as stocks retreated further from long-time highs set in the previous two months.
"We could see more of the same back and forth, somewhat directionless moves, on light volume, in the absence of any expected news," said John Caldwell, chief investment strategist at McDonald Financial Group. "This is clearly a market environment where all bets are off if something apart from the previously scheduled reports were to come to pass."
The market was roiled last week by several security scares, which came to nothing. On Thursday and Friday, investors were gripped by news from Pakistan, where forces are fighting 300 to 400 foreign militants and tribal allies, thought to include Osama bin Laden's second-in-command Ayman al-Zawahri.
The Dow Jones industrial average ended down 109.18 points, or 1.06 per cent, at 10,186.60, based on the latest data. The Standard & Poor's 500 Index declined 12.54 points, or 1.12 per cent, to 1,109.78. The technology-laden Nasdaq Composite Index fell 21.97 points, or 1.12 perc ent, to 1,940.47.
Friday marked the second straight down week for all three indexes. For the week, the Dow fell 0.5 perc ent, the S&P 500 fell 0.97 per cent, and the Nasdaq ended down 2.2 per cent.
If Pakistani forces capture a prominent al Qaeda leader this week, stocks are likely to rally - if only temporarily.
Conversely, follow-up attacks after Madrid would exacerbate investors' security fears and trigger a sell-off.
But some money managers say the US investing public is getting used to absorbing extreme events in the long run.
"There will be a lot more volatility, in return, due to geopolitical risks," said Sandy Lincoln, chief executive of fund firm Wayne Hummer Investments LLC in Chicago, who deals with a range of investors. "But underlying expectations for what we get from stocks may not actually move much off historical numbers. We don't see clients massively changing their allocations."
First-quarter profits could be surprisingly strong, Mr Lincoln said, perhaps renewing investors' hunger for stocks.
In the past week, investment banks Morgan Stanley, Bear Stearns and Lehman Brothers all booked strong increases in quarterly profit.
"I think investors are going to be phenomenally surprised on the upside," said Mr Lincoln, predicting hefty profit hikes as companies make the most of cost savings and productivity gains. "A lot of companies have really carved to the bone on expenses - it should provide explosive earnings growth."
Companies reporting this week include drugstore chain Walgreen today, and investment bank Goldman Sachs tomorrow.
Economic data on the "most watched" list will be led off by February durable goods orders, due on Wednesday. Economists polled by Reuters expect a 1.7 per cent increase in February's overall orders for durable goods, which include washing machines, computers, cars and other items intended to last three years or more - as consumers' appetite for spending continues.
On Thursday, the US government releases final fourth-quarter GDP figures. The forecast calls for an annualised growth rate of 4.1 per cent. At the same time, economists expect to see weekly initial jobless claims dip slightly to 335,000.
On Friday, the University of Michigan publishes its final consumer sentiment survey sentiment for March, expected to show a slight dip to 93.7 from the previous reading of 94.4.