The Long View : Brokers Seek to Head Off Panic--but Find Little

It’s a time for hand holding.

As investors face the first stiff market downturn in two years, stock brokerages are reaching out to their customers and trying to remind them to stay focused on the long term.

“We’re making a lot of calls to reassure our clients,” said Ron Ferrelli, a regional director for Smith Barney in New Jersey.

But even during Tuesday’s violent market swings, Ferrelli and others said, there was little evidence of panic among individual investors. Money managers, maybe, but not individuals.

There is a lot at stake for Wall Street in calming investor fears. The securities industry has enjoyed a tremendous surge of business volume and profits during the bull market’s 5 1/2-year run. The speed bumps the market is now hitting will test the brokerages’ salesmanship and education efforts--and their clients’ loyalty.

Although a number of firms--Smith Barney among them--have recently recommended that investors reduce their stock holdings, their more durable message is not to turn away from the market.

“We’re telling investors that a correction never feels good,” said Jerry H. Dombcik, managing director of research for Cleveland-based McDonald & Co. Securities. “But we still see this as a correction and not a bear market.”

While it is true that much of the money that has flooded into the stock market in the last two years has come from inexperienced investors, some of whom have never owned stocks before, it doesn’t necessarily follow that they are more prone to stampede out of a bad market, experts at several brokerages said Tuesday.

One reason they cited is that much of the investment has been made through individual retirement accounts and 401(k) retirement plans whose holders realize that they are in the market for the long haul and are willing to look beyond temporary fluctuations.

“The rap on individual investors--that they’re unsophisticated and emotional--is unfair,” said Alfred E. Goldman, director of market analysis for A.G. Edwards & Co. “There was panic in the Street today, but it was among the so-called professionals.”

The current downturn is the sharpest since the late winter and spring of 1994, when the Standard & Poor’s 500-stock index slid 8.9% in value.

“This is certainly the most severe decline in a couple of years, and people have been taken aback by it,” said Richard McCabe, chief market analyst for Merrill Lynch & Co. Still, he said, the slump has not been marked by “aggressive selling” by individuals.

McCabe said the steep drops of Thursday, Monday and midday Tuesday have drained some unwarranted “exuberance” out of the marketplace, which could be a healthy factor in the long run. Tuesday’s rebound, when the market recovered its losses amid record volume on the New York Stock Exchange, may be an emotional turning point, he said.

The news after the close of the market that chip maker Intel Corp.’s second-quarter profit rose a better-than-expected 18% could provide some positive momentum for today’s opening, McCabe said, especially considering that most of the market’s recent troubles have sprung from fears about shrinking profits in the technology sector.

While he gave those reasons for optimism, McCabe was careful not to pronounce an end to the slump.

A.G. Edwards more boldly outlined its reasons for continued confidence in a white paper it released Tuesday morning. Its title: “Still Bullish.” For a while, the timing of the report looked disastrous.

“Around noon [when the Dow Jones industrial average was in the midst of a 160-point plunge], I was looking for a new job,” Goldman joked.