Market Jitters Spread to Small Investors but Few Signs of Panic Are Seen
Individual investors on Main Street, who had been riding out the wild swings in the stock market more calmly than institutional investors on Wall Street, finally began to show signs of strain on Friday.
Individuals sold stocks and stock mutual funds at an increasing pace Friday, escalating a trend from earlier in the week, mutual fund companies and brokerages reported. Some money from these sales has been switched into money market funds--a favorite conservative refuge for worried investors--which have seen a sharp rise in sales in recent days.
“In some funds, redemptions (withdrawals) outpaced incoming money,” said Rab Bertelsen, spokesman for Fidelity Investments, the nation’s largest mutual fund family. Fidelity received about 170,000 calls on Friday, far above the 120,000 that is normal for this time of year, Bertelsen said. He did not have specific figures for redemptions.
But the outflow was orderly, with few signs of panic selling, industry officials said. And many individual investors in fact were buying stocks and mutual funds, seeing this week’s record 235.48-point plunge in the Dow Jones average of industrial stocks as the climax of a correction rather than the start of a long-term bear market.
“It’s time to buy,” said James M. Blankenship, a physician in Tacoma, Wash., who invests in mutual funds. He said he pulled out of the stock market entirely a month ago fearing a correction, but has been reinvesting in recent weeks. The current fall should “level off in the next several days,” he said. “It’s about as far down as it’s going to go.”
“There was some hand wringing, but no fear, no panic,” said Hugo W. Quackenbush, senior vice president of marketing at Charles Schwab & Co., the nation’s largest discount stock brokerage. By contrast, institutional investors on Friday “were in absolute panic. The bloodletting was unbelievable,” he said. On Thursday, when the Dow average tumbled 57.61 points, buying volume by Schwab customers totaled $68 million, exceeded selling volume of $60 million, he said.
Selling Binge
Some mutual fund companies said there were actually more redemptions or exchanges out of bond funds than stock funds, in part because some bond funds have been hit harder than stock funds and because investors in bond funds are not as accustomed to market declines as stock fund investors. Bonds, which decline in price when interest rates rise, have been battered amid recent rate increases.
“Even though the market was down 95 points, most of the telephone calls were on bonds,” Brian S. Mattes, spokesman for the Vanguard Group mutual fund company, said of investor activity on Thursday, a day after the market plummeted a then-record 95.46 points.
To be sure, a panic stock selling binge could emerge if the market correction continues and Dow falls much further--say, below the 2,200 level, some analysts said. That, they said, would persuade more people that stocks have entered a long-term bear market rather than just a severe correction in a bull market.
“It’ll be interesting to see what happens on Monday” after news of Friday’s record 108.36-point drop sinks in, said Steven E. Norwitz, spokesman for T. Rowe Price Associates in Baltimore. “I suspect we’ll have very heavy volume on Monday.” Mutual fund and brokerage officials offered several reasons for the lack of panic selling among individual investors:
- Most individual investors’ stocks and mutual funds have not plummeted as much as the blue chip issues in the Dow industrial average or the Standard & Poor’s index of 500 stocks. Individual investors tend to buy stocks of smaller companies, which have lagged gains in the Dow and S&P; 500 all year but also have not fallen as much in the latest plunge that began Oct. 5.
“Most small investors aren’t invested in the blue chips,” Terry L. Chase, resident manager of retail brokerage at the Los Angeles firm of Bateman Eichler, Hill Richards, said in explaining the lack of small-investor selling.
Some equity mutual funds have hardly fallen at all, having shifted more of their assets into cash in recent weeks. One, T. Rowe Price Capital Appreciation Fund, had about 40% in cash at the beginning of October. The fund’s share value was down only 1.8% so far this month as of Thursday, compared to a 13.5% plunge in the Dow and 16.1% fall in the S&P; 500, both as of Friday.
- Individual investors are not big players in the market anyway. Many individuals have already been scared away because of the market’s volatility.
“We haven’t seen the individual investor in here on either side,” buying or selling, said Mark H. Fusco, president of Morgan, Olmstead, Kennedy & Gardner, a Los Angeles-based brokerage. That, he said, continues a pattern all year, noting that September was the company’s slowest month for retail brokerage in at least 12 months, and October has been only a little better.
- Individual investors tend not to trade as often as the institutional investors whose trades in blue chip stocks are largely responsible for movements in the Dow industrial average and S&P; 500.
“We don’t have the kinds of people who flee at the first signs of a down market,” said Howard M. Stein, chairman of Dreyfus Corp., a major mutual fund company. He noted that many investors in Dreyfus’ equity funds are still way ahead for the year and so are in no hurry to sell.
- A lot of individual investors are already out of the market, some having bailed out in late August or early September after the Dow hit its all-time record high of 2,722.42 on Aug. 25.
“This (decline) is just what I was waiting for,” said Daniel Kane, a Berkeley investor who said he was “in good shape” because he had bought some put options--the type of option that allows an investor to bet on a decline in stock prices.
“I had a wide range of mutual funds . . . and I got out,” said William F. Baggerman, a retired real estate manager and private investor in St. Louis. He said he had 15 mutual funds at the beginning of the year but sold all but four because of worries about the trade deficit and the federal budget deficit.
“After I began to get so concerned six to eight months ago, I got out of most of them,” Baggerman added, noting that he now is only 10% invested in equities.
Mutual fund company officials noted that while redemptions were picking up in some equity funds, others were selling quite well. Some fund companies reported renewed interest in their international stock funds, as new records are being set in Tokyo and other foreign markets.
“People are trying to diversify internationally as a hedge,” said Norwitz of T. Rowe Price. He also noted increased demand for the firm’s New Era Fund, which, by investing in stocks of natural resource companies, is seen as a good inflation hedge.
Main story, Part I, Page 1. VOLUME RECORDS
The 10 busiest trading days on the New York Stock Exchange, with the number of shares traded on each date.
Oct. 16, 1987: 338.48 million
Jan. 23, 1987: 302.39 million
Aug. 11, 1987: 278.13 million
April 14, 1987: 266.54 million
Oct. 15, 1987: 263.18 million
Feb. 5, 1987: 256.66 million
Jan. 15, 1987: 253.12 million
Dec. 19, 1986: 244.68 million
Sept. 8, 1987: 242.80 million
Sept. 12, 1986: 240.49 million
HOW THE LARGEST MUTUAL FUNDS FARED
Price Price 5 Fund Oct. 2 Oct. 16 change Pioneer II 24.57 21.74 -11.52 Templeton World 19.22 17.62 -8.32 American Capital Pace 29.85 25.86 -13.37 American Funds Investment Co. of America 16.97 15.26 -10.08 Fidelity Magellan 59.58 51.93 -12.84 Lord Abbett Affiliated 13.42 11.90 -11.33 Fidelity Equity Income 30.18 27.87 - 7.65 Merrill Lynch Retirement 12.66 11.73 - 7.35 Fidelity Puritan 14.26 13.25 -7.08 Vanguard Windsor 17.25 15.87 -8.00
BEAR TRACKS
The following lists the 10 biggest extended declines in the Dow Jones industrial average since World War II. Included are the duration of the downturn, beginning and ending prices, and percentage decline represented by a bar. Including Friday’s 108.36-point drop, the Dow has declined 17.5% since its peak Aug. 25--still not in the Top 10.
Beginning Ending Decline Date price price Percentage Dec. 3, 1968-May 26, 1970 985.20 631.15 -35.94% March 13-Oct. 4, 1974 891.57 584.55 -34.44% Dec. 13, 1961-June 26, 1962 734.90 535.75 -27.10% Sept. 21, 1976-Feb. 28, 1978 1,014.78 742.11 -27.87% Feb. 9-Oct. 7, 1966 995.14 744.31 -25.21% April 27, 1981-Aug. 12, 1982 1,024.04 776.91 -24.13% May 29-Oct. 9, 1946 212.50 163.12 -23.24% Oct. 26-Dec. 5, 1973 987.05 788.30 -20.14% July 12-Oct. 22, 1957 520.76 419.78 -19.39% Jan. 11-Aug. 22, 1973 1,051.69 851.89 -19.00%
Source: Salomon Bros.
