Wall St. Rally Stirs Hopes for Rebound
After a dizzying early plunge, Wall Street staged a furious afternoon rally Thursday that raised hopes of at least a temporary halt to the vicious selling of recent weeks.
The Dow Jones industrial average rebounded from a 381-point drop to close off 97.52 points, or 1%, at 9,389.48, as buyers poured into the market in the session’s final 90 minutes.
Trading volume was the third-heaviest ever on the New York Stock Exchange.
Though no single catalyst lay behind the abrupt turnaround, experts said investors were heartened when technology stocks, which have been locked in a yearlong dive, held up relatively well during the morning Dow swoon.
The tech-dominated Nasdaq composite index was down only modestly Thursday at its worst and gained steam in the afternoon to finish the day up 67.47 points, or 3.7%, at 1,897.70. Among tech leaders, Microsoft shares surged almost 8% while Intel leaped 12%.
That stirred hope that the worst of Nasdaq’s losses are over--an essential first ingredient in any long-term market recovery, many analysts say.
“It’s very encouraging,” said Tim Hayes, global equity strategist at Ned Davis Research in Venice, Fla. “Things are looking much better than they were a week ago.”
The rebound in tech, the Dow’s comeback and the extraordinary trading volume convinced some analysts that the market had undergone a “capitulation.” That’s Wall Street’s term for a climax of activity in which sellers exhaust themselves, setting the stage for a sustainable rebound.
Capitulation is marked by the sort of panic selling that gripped the market early in the day as investors fled stocks with abandon, analysts said.
“We’ve been looking for fear, and we certainly have seen it in the last few days,” said Louis Parks, head of equity trading at Raymond James Financial in New York.
Battered by worries about falling corporate profits and evidence that the U.S. economic slowdown is spreading worldwide, the Dow average slumped 821 points last week--the worst loss since 1989--and this week through Wednesday had fallen an additional 336 points.
The Federal Reserve’s interest rate cut of 0.5 point Tuesday only worsened investors’ mood because many were hoping for a deeper cut.
Kirby Schnebly is one of the many individual investors who have been growing more anxious about the market every day.
“A one-day rally isn’t enough to combat the fear people feel right now,” said the 45-year-old distribution-company controller from Orange County. “Panic is etched into our minds. People fear another plunge can happen any day. It’s a horrible feeling for those people banking on tech stocks.”
Indeed, many analysts aren’t ready to pronounce that the market’s slide--the worst since 1987--has run its course. Some said Thursday’s rally was only a short-term rebound in the midst of an ongoing bear market.
Despite the Dow’s rebound Thursday, falling stocks still outnumbered rising issues by more than a 3-to-1 margin on the New York Stock Exchange.
What’s more, the Dow’s drop left it at a two-year low and down 19.9% from its record high set 14 months ago--a hair’s breadth short of joining other key indexes in official bear markets, meaning a loss of 20% or more.
Until this year, the bulk of the market plunge was centered in Nasdaq tech stocks that had risen to tremendous heights in 1999 and early 2000. But in recent weeks, amid signs that the U.S. economy won’t shake off its torpor any time soon, selling pressure has spread to blue-chip favorites such as General Electric, American Express and Merck.
During the late-1990s tech-stock fervor, shares of companies in staid industries such as drugs and banks became relatively cheap as many investors shunned them. When Nasdaq began falling a year ago, many institutional investors poured into such “old-economy” stocks because they were viewed as a safe haven.
But some analysts say shares of old-line companies have become expensive relative to weakening earnings--a realization that may have convinced more investors to bail out over the last month.
“There’s now more risk in the broader market than there is in Nasdaq,” said Bill Meehan, chief market analyst at institutional brokerage Cantor Fitzgerald & Co.
Though analysts were hopeful that Thursday’s session may mark at least a short-term bottom, they noted the market may face some new obstacles soon.
One problem is that many investors who have suffered steep market losses may also be facing hefty tax bills due April 16. Last year, many mutual funds sold long-held tech stocks in which they had profits, and paid those taxable capital gains to shareholders.
Rather than sell some of their fund shares earlier this year to raise cash to pay the taxes, many people held on, reasoning that the market would rebound.
“People said, ‘I’d be a dope to sell now. I’ve got [several] months to pay my taxes,’ ” Meehan said. “Now people are saying, ‘It looks like it’s never going to go up. I’ve got to pay my taxes. Get me out.’ ”
The market may run into another roadblock by mid-April, as individual investors receive quarterly account statements from their mutual funds and brokerages.
Until recently, investors who shunned the tech-stock hype had suffered only moderate losses. But with this year’s dive in blue chips, even conservative investors may see their statements slathered in red ink--raising the risk that they will be shocked into selling.
“That’s the $64,000 question,” said Henry Herrmann, chief investment officer at mutual fund group Waddell & Reed.
The staying power of individual investors has been a bulwark for the market during its many brief downturns in the 1990s, and many people say their faith remains intact.
Nevertheless, mutual funds are believed to have suffered net redemptions last month for the first time since August 1998--a trend that appears to be continuing this month and that shows how deeply investor conviction is being tested.
“It’s so sad,” said Al Martinez, 39, an operations manager at the Metropolitan Transportation Authority in Los Angeles. “Every day it’s just more bad news. I can’t take it much longer. It just ruins the whole day.”
Martinez banked on tech stocks, such as wireless tech giant Qualcomm, two years ago after his friends encouraged him to join the tech “bandwagon,” he said. So far, he’s hoping his decision to “ride the wave” still is a good one.
But “if I drop 50% from where I was last year, I’m out,” he said. “I’ll move my money to something safe.”
“If only I’d pulled out nine months ago,” Martinez said. “Of course, that’s what everyone says, ‘If only.’ ”
If stocks don’t turn around soon, that kind of pessimism may hurt more than the market: It also threatens to inflict long-lasting damage on the U.S. economy, experts say.
Consumer spending accounts for two-thirds of economic growth. As sagging stock prices make investors feel poorer, they could rein in their spending on everything from cars to clothes to electronics, deepening the economic slowdown.
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Times staff writer Sarah Hale contributed to this report.
More Inside
Tax Cut Fever: The Senate GOP has decided to seek an additional $60 billion in immediate relief, A16
Blue-Chip Losses: Many diversified, big-name stock funds are being hammered this year, C1
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Wild Ride
The Dow Jones industrial average plunged as much as 381 points Thursday before staging a dramatic rebound.
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Dow industrial average each 30 minutes Thursday
Thursday close: 9,389.48, down 97.52 points
Source: Bloomberg News
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NYSE Has Third-Busiest Day
The New York Stock Exchange on Thursday had its third-busiest day in history, as more than 1.72 billion shares traded on the exchange floor. The NYSE’s busiest days were Jan. 4 and Jan. 3, in the wake of the Federal Reserve’s surprise interest rate cut Jan. 3.
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Share volume Date (in billions) Dow close and change Jan. 4, 2001 2.131 10,912.41, --33.34 Jan. 3, 2001 1.880 10,945.75, +299.60 March 22, 2001 1.723 9,389.48, --97.52 March 16, 2001 1.570 9,823.41, --207.87 Dec. 15, 2000 1.561 10,434.96, --240.03 April 4, 2000 1.512 11,164.84, --57.09 March 16, 2000 1.482 10,630.60, +499.19 June 30, 2000 1.459 10,447.89, +49.85 Dec. 21, 2000 1.449 10,487.29, +168.36 Jan. 18, 2001 1.445 10,678.28, +93.94
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Source: Bloomberg News
