Geopolitics grab the headlines but economic fundamentals still matter. That was one message of Monday's session as major averages surrendered early gains following a weaker-than-expected report from the Institute for Supply Management.

After trading as high as 7981.46 right after the ISM report came out at 10 a.m. EST, the

Dow Jones Industrial Average

fell fairly steadily thereafter and closed near session lows, down 0.7% to 7837.86. Following similar patterns, the

S&P 500

fell 0.8% to 834.81 after trading as high as 852.34 and the

Nasdaq Composite

shed 1.3% to 1320.30 vs. its earlier best of 1353.30.

Certainly other factors weighed on shares -- the Dow again faltered as it approached 8000 and the Comp near its 50-day moving average; Warren Buffett issued some cautious comments on stocks and

General Motors

(GM) - Get Report

posted a steep drop in February sales -- but the stock market's fall coincided with the ISM report.

The ISM's manufacturing survey fell to 50.5 in February vs. 53.9 in January and consensus expectations for a smaller dip to 52. Notably, there was a larger-than-expected decline in new orders, which fell to 52.3, their lowest level since October. Also, the employment index fell to 42.8, the lowest level since January 2002.

"After a burst of momentum around the turn of the year, manufacturing is downshifting once again," commented Jay Feldman, economist at Credit Suisse First Boston.

Feldman agreed with the consensus view that geopolitical concerns were a big factor in restraining manufacturing last month. "If there's resolution in Iraq and oil prices go down, you could be in for a decent second half," he said, noting the likelihood of some fiscal stimulus as well. But "the fog of war being what it is, we'll have to wait and see," the economist added, noting that Monday's ISM report is "directionally consistent" with his decision last week to lower GDP forecasts to 2.5% from 3% for 2003's first quarter and to 1.5% from 2.7% for the second.

The ISM report overshadowed both a weaker-than-expected report on personal income/spending, and a much stronger-than-expected report on construction spending, which rose 1.7% in January.

In concert with shares, the dollar fell from its early highs after the release of the ISM report. The U.S. Dollar Index ended down 0.66 to 99.05, its lowest close since October 1999. (The index did stay above its Feb. 5 intraday low of 98.65, which many traders see as the next crucial support level.)

Meanwhile, the price of the benchmark 10-year Treasury rose 4/32 to 101 21/32, its yield falling to 3.67%.

War, Greed, Gold

Monday's geopolitical news included the weekend capture of Khalid Sheikh Mohammed, a high-ranking al Qaeda leader and alleged mastermind of the Sept. 11 attacks. Some pundits attributed the stock market's early strength to that news. However, the Turkish Parliament's refusal to allow the U.S. military the option of operating from Turkish soil was an offsetting development that should have restrained shares. Of course, that's assuming geopolitics is really the major force behind the daily and intraday movement of stocks, a notion of which I remain


Speaking of dubiousness, other issues weighing on shares included

Capital One

(COF) - Get Report

CFO David Willey resigning amid allegations of insider trading, and former



CEO Sam Waksal pleading guilty to tax-evasion charges. As with



accounting scandal last week, these developments reminded investors that the illegal and unethical practices of the 1990s bubble are not yet a thing of the past.

Finally, and speaking of things past, gold futures fell 0.3% to $349.30 per ounce despite weakness in U.S. stocks and the dollar, and the (still) unresolved timing of war with Iraq. The Philadelphia Stock Exchange Gold & Silver Index fell 2.9%, and

Royal Gold

(RGLD) - Get Report

tumbled 32.6% following a critical piece in the current issue of


. Among majors,

Barrick Gold


, the subject of a fairly even-handed story on Sunday's

New York Times

, fell 2.2%.

In addition to the Royal Gold and Barrick stories this weekend, gold futures traded as low as $345.20 per ounce this morning. Eyeing this, it seemed gold and related shares are approaching another one of those critical junctures. The myriad folks who've long been calling for gold's demise are now probably convinced the spike above $380 per once last month marked the metal's last hurrah.

Conversely, "if you feel like you missed the whole thing, maybe you're in the process of seeing an entry point," said Nick Moore, portfolio manager at Jurika & Voyles, an Oakland, Calif.-based firm with more than $1 billion under management as of Dec. 31. "I think you can look for a good long-term entry point

here but I'm not tempted to buy anything."

The relatively small hedge fund Moore runs for Jurika & Voyles currently has no position in gold stocks, save a "few shares" of

Newmont Mining

(NEM) - Get Report

. The fund exited positions in other major producers such as

Anglo Gold

(AU) - Get Report

just before the shares spiked higher Jan. 22-24.

Despite missing that surge, Moore's rationale for selling was that the stocks "were sending a signal that

the price of gold was not sustainable," which proved to be the case. (Indeed, veteran technician Martin Pring made a similar argument about the nonconfirmation of mining stocks on

Feb. 4, just a day before the metal peaked.)

In retrospect, Moore believes the main impetus for gold's rise from early December to early February was weakness in the dollar rather than geopolitical events, as was commonly cited. Monday's setback aside, the dollar has been going sideways since mid-January and that "took away a driver" for gold, he said. Meanwhile, the metal had become "driven by speculators," Moore suggesting, noting a trend of increasing long positions by speculators in the Commitment of Traders report. The Commodity Futures Trading Commission recently raised margin requirements, which dampened such activity, he noted.


gold market got ahead of itself, stocks never believed the last X amount of the move and it was due for a correction" now unfolding, Moore said.

The money manager

still believes there are fundamental reasons supporting a long-term bullish case for gold. But he's currently "disengaged" and agnostic about related shares, a very rare viewpoint in this highly emotional sector.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.