Haven’t Hit Bottom, Analysts Say : Securities: There are other things to worry about besides the Mideast situation, some analysts warn, such as the budget deficit and inflation.
Wall Street’s bounce back from its lows Friday encouraged some analysts, who say the market now appears more likely to avoid a one-day meltdown similar to the October, 1987, crash.
Still, many experts believe that stocks are almost certainly headed lower before any significant rebound begins.
Some key growth stocks managed to gain in late trading Friday, after heavy selling Thursday and early Friday. Compaq Computer, for example, finished up $1.375 to $54.50 for the day, having traded as low as $49.75.
Likewise, Wal-Mart, one of the market’s premier growth stocks, finished up 50 cents to $30.375 after trading as low as $28.50.
The Dow Jones industrial index closed down 54.95 points to 2,809.65, after being down about 123 points around mid-morning. The recovery was fueled by expectations that Iraq will soon withdraw from Kuwait. News of the invasion on Thursday had started a chain reaction that shook financial markets worldwide.
Investors’ willingness Friday to return to selected growth stocks--which had led the market’s spring rally--suggested that pessimism hasn’t become extreme enough to allow a devastating one-day decline. Bargain hunting for growth stocks indicates a belief on the part of some money managers that the economy isn’t headed for a severe recession, despite warning signals to the contrary.
Peter Anderson, head of the pension arm of Minneapolis investment giant IDS, said his firm was a buyer Friday of such stocks as Procter & Gamble, Toys R Us, Philip Morris, Great Western Financial and Liz Claiborne.
“We’re a lot more optimistic than a lot of people,” Anderson conceded. He believes that any inflation spike from higher oil prices will be temporary and that the economy will continue to grow, albeit at a slow rate.
But many analysts noted that much or most of the buying Friday was by the two groups that are charged with absorbing stock when no one else will: brokerage firms and New York Stock Exchange specialists.
The selloff “was really not a full purge,” said David Holt, technical analyst at Wedbush Morgan Securities in Los Angeles. He believes that the market has further to drop as worried investors bail out. A decline of 5% more, which Holt says is possible, would take the Dow down another 140 points, to about 2,670. That would be an 11% drop from the Dow’s peak of 2,999.75 in mid-July.
Some analysts, noting that many stocks have already fallen far more than 11% from their highs, say the Dow could end up as much as 15% off from its peak before the selling ebbs. “I see at least a 10% to 15% correction,” said William Raftery, technical analyst at Smith Barney, Harris Upham & Co. in New York. A 15% drop would mean a Dow of 2,550--its bottom in late February.
But the art of predicting market bottoms is as difficult as it ever has been, experts say. Any renewed optimism that may develop in the short term could be swept away by another Iraqi military move or by another sign that the economy is sinking into recession.
So far, though trading volume has been heavy, many investors seem to be resisting panic. The Vanguard Group mutual fund company in Valley Forge, Pa., reported Friday that few individual investors were doing much selling. “People just wanted to call and talk. There’s a lot of jabbering but no real action,” said spokesman Brian Mattes.
William Patternotte, research chief for the Alex. Brown & Sons brokerage in Baltimore, said big investors he met with Thursday and Friday were calm. “I certainly don’t sense any panic,” he said.
Nonetheless, many investors obviously have been dumping stocks. And the bears say the Iraqi invasion simply gave investors an excuse to react to a long string of bad news in recent months, which up until now stocks had blithely ignored: falling corporate earnings, a budget crisis in Washington and a troubling undercurrent of inflation in a weak economy.
Those events are more likely to mean further selling ahead than a fast rebound, the bears say. “All Iraq did was accelerate what was going to happen anyway,” said Charles LaLoggia, who writes the Special Situation Report market newsletter in Rochester, N.Y.
He is among the most bearish market analysts, predicting that the Dow won’t bottom until it hits 1,500 to 1,700 within two years. LaLoggia sees a severe recession that will shake the foundations of the nation’s financial system.
Most analysts refuse to believe that the economy could be in that much trouble. And while the market may go lower in the short term, some experts remind investors that all market cycles--bull and bear--seem to have been compressed into increasingly shorter time frames in recent years.
“Corrections that used to last a couple of months now last a few weeks or a few days,” says Gene Seagle, technical analyst at Gruntal & Co. in Stamford, Conn. If the economy avoids recession and Mideast tensions ease, by fall the current turmoil may be a distant memory, he said.
HOW SOME KEY STOCKS FARED Despite the Dow industrials’ 54.95-point loss Friday, some key growth stocks managed to rebound in late trading--which some analysts take as a positive sign that the market isn’t likely to collapse on Monday. Still, many stocks suffered sharp losses.
Friday trading: Stock Open Low Close Compaq $52 5/8 $49 3/4 $54 1/2 Circus Circus 55 53 3/4 55 5/8 Wal-Mart 29 5/8 28 1/2 30 3/8 Boeing 51 1/2 49 7/8 54 AST Research 19 1/2 18 7/8 20 IBM 109 1/4 103 3/4 108 1/8 Fluor 44 3/4 41 43 1/4 Disney 109 1/2 102 1/4 109 1/2 May Department Stores 48 3/4 45 3/4 46 1/2 3M Co. 88 3/4 83 1/2 86 1/8 Dow industrials 2,862.38 2,740.84 2,809.65
Daily Stock change Compaq +1 3/8 Circus Circus +1 1/8 Wal-Mart + 1/2 Boeing + 1/2 AST Research + 1/4 IBM -1 5/8 Fluor -1 5/8 Disney -2 1/4 May Department Stores -2 3/8 3M Co. -2 7/8 Dow industrials -54.95
