What's driving the markets?

These days, the exuberance seems irretrievable.

The stock market is higher than when Alan Greenspan warned about "irrational exuberance" six years ago -- but the feel-good factor feels gone, gone, gone.

The market is shaped by measurements, mood -- and some would say, madness. It moves, but seems stuck.

The Dow Jones Industrial Average finished down 17.9 percent for the third quarter, which ended on Monday. It was the sharpest decline since the fourth quarter of 1987, the year of Black Monday.

The journey has been both of calm and chaos and permutations in between -- the pulse-taking market having at least something to say about each of them.

So many magic moments have occurred since Greenspan warned about all that exuberance, a remark that caused the market to drop, after which it blithely spiraled upward.

Up it went past 10,000 points, back in the spring of 1999, making a presidential candidate's ideas about putting Social Security money into private investment accounts look so appealing.

These days, it dips below 7,500, making that same plan look iffy, at best. It closed Tuesday at 7,938.79, a 340-point lurch analysts said was a temporary reaction to its sharp decline.

Some things the market takes in stride, while others make it jumpy. Figuring out which is which is a life's work for analysts and a question vital to the life savings of millions of Americans.

"Fear and greed" -- not just a clearheaded analysis of a company's prospects -- are the motors that drive the market place, according to Richard Linowes, a management expert at the Kogod School of Business at American University in Washington.

On one hand, a troubling economic indicator can knock the numbers out of whack. On the other hand, analysts think the market could bear another catastrophic event like Sept. 11 without going haywire.

"We can measure growth, we can see interest rates, but it's impossible to measure risk," said Randy Woolridge, a finance professor at Penn State's Smeal College of Business.

"You see fluctuations daily, hourly, even minutes before, during and after a news event," said Richard Edelman, an American University finance expert who has analyzed the relationship between news and the markets for 20 years. "It shows the market isn't as efficient in the short term as it is over the long run."

Other moments

Here are some other magical Wall Street moments:

  • July 16, 1997: Investors buoyed by the economy closed the Dow beyond 8,000 for the first time. The same day, the nation at peace, police were closing in on Andrew Cunanan, the killer of designer Gianni Versace.

  • Jan. 23, 1998: Treasury Secretary Robert Rubin is not among a group of four Cabinet members who met with reporters and said they believed President Clinton was innocent of wrongdoing in the Lewinsky matter. Rubin is so respected by Wall Street that his mere absence sparks a stock price plunge.

  • March 20, 2000: A presidential campaign light on issues is just beginning to chug along, sharing headlines with the search for a road-rage dog killer.

    The only predator in sight has been dead for millions of years, the bones of a meat-eating dinosaur have been discovered in Patagonia.

    The high-tech heavy Nasdaq has popped 5,000, closing at 5,048.62, its all-time high.

    Calm seas, but trouble is in the offing, and the Dow -- having peaked at over 11,000 just two months earlier -- is back below 10,000, reflecting an emerging lack of confidence in the same high-tech stocks that have inflated the Nasdaq.

  • July 22, 2002: Almost exactly five years after it broke 8,000, the Dow flutters around that benchmark again -- this time headed south. It closes below that figure for the first time in four years, prompted by WorldCom Inc.'s Chapter 11 filing.

  • Sept. 19, 2002: President Bush wants Congress to give him the authority to wage war on Iraq, a suicide bomber shatters two weeks of relative calm in Israel, and the government warns that the fearsome West Nile virus can be transmitted by transfusion.

    The Dow continues sliding well below the 8,000 mark. The Nasdaq? It struggles at the 1,200 mark, losing an astonishing 75 percent in barely 18 months.

    The nonfinancial news was similarly unsettling: Afghan President Hamid Karzai asked for a U.S. bodyguard, a telling reminder of the threat al-Qaida still posed, and the government had acknowledged that its anthrax tests were unreliable -- a reminder that a mass killer was still on the loose.

    The market already was in decline before Sept. 11, but the attacks are the wake-up call that keeps ringing, said David Wyss, the chief financial economist at Standard and Poor's Corp., a bond-rating organization.

    "We suddenly realized we live in a bad neighborhood," he said, although he stressed that a good deal of the anxiety was homegrown. "It's hard to say how much of the damage has been done by the terrorists versus the accountants."
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