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NewsMarch 2, 1998

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson. Conclusion: If the U.S. launches massive airstrikes against Iraq, the immediate impact on the stock market would likely be a modest decline. We believe it would not change the long-term fundamentals of this bull market...

Alan F. Skrainka

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

Conclusion: If the U.S. launches massive airstrikes against Iraq, the immediate impact on the stock market would likely be a modest decline. We believe it would not change the long-term fundamentals of this bull market.

Key points:

Airstrikes against Iraq could lead to a short-term decline in stock prices because of the importance of the region's oil resources, the uncertainty created by a military confrontation and a possible spike in oil prices.

Emotions drive the stock market in the short run: Fear of the political consequences of a military strike against an Arab state could raise questions of a possible political backlash against the United States.

The stock market would likely recover after an initial sell-off, as investors begin to recognize key differences between the current state of affairs and the Gulf War of 1990-1991.

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In 1990-1991, oil prices doubled in a week, triggering a U.S. recession. Such a reaction in oil markets is unlikely this time because, unlike the first Gulf War, investors would likely not be concerned about a possible disruption in supply from Kuwait or Saudi Arabia. These fears were obviously present in 1990-1991.

Because of the current oil embargo being enforced against Iraq, Iraq is currently only shipping a fraction of the oil it was shipping in 1990-1991.

We believe Arab countries would publicly denounce U.S. military action against Iraq, but we also believe that these countries will not take any meaningful action against the United States in terms of withholding supply.

In terms of outcomes, we do not think the United States versus Iraq would be an even fight and would anticipate a military campaign to end relatively quickly.

Alan F. Skrainka, CFA

chief market analyst

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.

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