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War fears grip U.S markets

Jun 1, 2002

It was another down week for the U.S markets. Fears of escalation in tension between India and Pakistan are likely to have taken a toll on Wall Street. With the U.S embassy issuing a travel warning and evacuating non-essential staff from India, especially due to nuclear threat, alarm bells seem to have been rung. It is likely that investors' did not want to go into the weekend holding stocks. The Dow and NASDAQ have fallen for the second consecutive week giving up the gains registered over the preceding fortnight. Another signal of weakness is selling by investors' into every rally, which indicates that participants do not believe in a sustainable upturn.

That said, economic data for the week was positive, which led to some risers on the Dow. Regional manufacturing orders rose to their highest level in two years, factory orders were higher for April '02, the bulwark of U.S economy - consumer confidence continued to rise and productivity numbers have come in higher. Nevertheless, these positives could not overcome the fears of rich valuations, terrorist threats, escalating tensions in South Asia and a weakening dollar. The soaring nineties seem to have created a perception of invincibility of U.S financial markets. However, with low U.S interest rates and equities recording negative earnings for the past two and a half years, the faith in the U.S financial assets is waning. Consequently, there is a threat to the U.S dollar.

Most Indian ADRs were in the losers' list. This is largely due to war fears. Technology seems to be hit all the time. Fears that clients may delay/cancel their visits to the country for placing fresh orders is likely to affect the sector.

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