NEW YORK, JAN. 18 -- How can the stock market be so callous as to profit from the outbreak of war?

That was one question gnawing at Wall Street's conscience today, in the midst of a two-day, 140-point rally that sent stock prices shooting upward at the speed of a Patriot missile.

"I can't believe we're making money during all this," a heavyset, balding trader said on the floor of the New York Stock Exchange early this afternoon, shortly after President Bush warned against excessive euphoria over the initial military successes of U.S.-led forces against Iraq.

The oil markets also were the scene of seemingly cold calculations about how many cents a barrel a given act of violence was worth.

"It's so funny how we get so anesthetized to this," said one New York oil trader this afternoon, noting that oil markets had barely moved following early (and ultimately incorrect) reports of fresh missile attacks on Israel. "So what's another missile attack?"

With huge audiences riveted to television screens, the financial markets' reputation risked suffering damage from the awkward juxtaposition of images of young American pilots returning jubilantly from their missions, and happy brokers shouting and gesturing in the trading pits.

The video history would record it this way: Thursday, Jan. 17, 1991, the day American and allied planes flew 2,000 sorties over Iraqi territory and Israel was struck by eight Iraqi missiles. And Thursday, Jan. 17, 1991, the day frantic trading on Wall Street drove volume to its eighth-highest day in history. Shearson Lehman Brothers Inc., the brokerage arm of American Express, reported that it earned record commissions, while the stocks of other Wall Street firms were conspicuously big gainers in the markets.

The pairing, according to Wall Street executives, served only to confirm the public's worst suspicions of Wall Street.

Yet while greed and speculation unquestionably played an important role this week, it also was clear that the markets were reacting to real events with real impacts on business and economic prospects.

For months the millions of investors, traders and speculators who make up "the stock market" had been fretting over a variety of nightmarish scenarios that could accompany the start of hostilities -- especially the prospect that Iraq might knock out Saudi Arabia's oil fields -- and had built those fears into the price of stock. When it seemed likely that the United States and its allies apparently had won control of the air even quicker than expected, those fears lessened and stocks soared as the "war discount" was quickly recalculated.

"It wasn't because the markets like war. It was because the markets had assumed that the initial effect of the beginning of the war would be worse than it turned out," said Michael Duval, a former Marine captain who manages a mergers and acquisition firm. "It's very important to understand that the changes that occur in the market are not a reaction to the reality of what happened a moment or a few moments before in the gulf, but rather to the difference between what the market thought was going to happen versus what in fact did happen," said Duval, who serves on an advisory panel to Defense Secretary Richard Cheney.

This first principle of financial markets -- that prices adjust constantly not only to real events but also to changing expectations fueled by those events -- also was at the heart of the breathtaking, $12.50-a-barrel plunge of oil prices over the past two days.

Since Iraq's invasion of Kuwait on Aug. 2, the fear of war had kept up the price of oil in spite of an enormous glut that has oil tankers idling off American shores because storage tanks are so full.

When Iraq mounted a weak opposition at the start of the war and U.S. and allied military strikes appeared to severely damage Baghdad's ability to do so in the future, the markets stopped worrying about combat's impact on Saudi oil output. Oil prices plummeted because the markets went back to looking at simple market forces -- in this case, a huge excess of supply over demand.

"I love to go back to the old days," of responding to economic fundamentals, said Scott Matthews, an oil trader at Dow International Energy Corp. here.

Even in the old days, investors and traders recognized a piece of news that foreshadowed a change in the course of the economy, and the early dispatches from Persian Gulf qualified as that.

The stock market's rally resulted from the expectation that "a quick resolution in the Persian Gulf will improve consumer confidence, lower oil prices and lower interest rates, which will make whatever recession we're in shorter and shallower," said Steven G. Einhorn, co-chairman of the investment policy committee at Goldman Sachs & Co.

As the war unfolds in the Persian Gulf, there undoubtedly will be more days like last Thursday as financial markets in New York and around the world mix fear and greed, reality with expectation, speculation with fundamentals.

These sessions offer the financial equivalent of political "tracking polls," establishing through the market's constantly changing numbers the collective sentiments of millions of people as they absorb the mass of information bombarding them day and night. Like any poll, this one is not fixed, or fully rational, or precisely accurate. But as any good politician will tell you, it is a glimpse of reality that cannot be ignored.

Staff writers Kara Swisher and Mark Potts contributed to this report.