Wall Street Continues Its Post-Attack Rebound
Wall Street on Thursday extended the three-week rally that has largely erased the losses that followed the Sept. 11 terrorist attacks, as investors overcame worries about the economy and the war in Afghanistan.
The surprising rebound, which began Sept. 24 after Wall Street suffered its worst week since the depths of the Great Depression, reflects growing optimism government efforts to revive the U.S. economy will bear fruit next year and that investors are beginning to regain some of the confidence snuffed out by the attacks on the World Trade Center and the Pentagon.
“What we’ve learned in the last week or two is that our direst fears didn’t come true,” said Charles Blood, market analyst at Brown Bros. Harriman & Co. in New York.
The market also has been helped by some positive earnings reports, most notably from heavyweight General Electric, which Thursday said it is on track for double-digit profit growth this year and next.
Market psychology remains fragile in the wake of the attacks and as the U.S. retaliatory bombing raids in Afghanistan continue. But analysts cited tentative signs of a rebirth in investor confidence.
In the last few days, for example, investor money has flowed from ultra-safe U.S. Treasury securities to riskier technology stocks and stocks that are sensitive to changes in the economy. Also, the dollar, which slumped against foreign currencies in the days after the attacks, has rallied to its highest levels in weeks against the European euro and Japanese yen.
The Nasdaq composite index--home to many of the best-known technology companies--and the Standard & Poor’s 500 index--a commonly used gauge of the market’s overall health--finished Thursday’s trading above their levels of Sept. 10.
High-tech giants such as Intel, Cisco Systems and Qualcomm led Nasdaq to a gain of 75.21 points, or 4.6%, to close at 1,701.47, adding to Wednesday’s 3.6% increase. The S&P; 500 advanced 16.44 points, or 1.5%, to close at 1,097.43. Big gainers included GE and 3M.
The widely watched Dow Jones industrial average climbed 169.59 points, or 1.8%, to finish at 9,410.45--still nearly 200 points below its Sept. 10 level but 14% above where it sank to in the first week of trading after the attacks.
To be sure, Wall Street remains mired in a long and deep bear market. The Dow, which has held up better than other indexes, is 20% below its record high of 11,722.98, reached Jan. 14, 2000. The Nasdaq is down a staggering 66% from its March 10, 2000, record, despite a gain of more than 14% in the last three weeks.
Even the modest rally now in progress is vulnerable to another terrorist attack or a bad economic report, analysts said.
“Something goes awry in the Mideast and we could erase these gains in no time,” said Stephen Carl, head of trading for Williams Capital Group in New York.
Blood, of Brown Bros., described the aftermath of the attacks as a three-stage process: the initial shock, the recovery and the long-term effects. the recivery has been impressive so far, he said, but it’s early. It’s too soon to tell whether consumer behavior, for example, will undergo a long-term change because of the attacks.
Yet consensus is growing on Wall Street that the U.S. economy will recover in the first half of next year, lifted by a massive dose ofgovernment spending and tax relief, plus the campaign of interest rate cuts the Federal Reserve Board launched in January.
“The indexes may be back where they were [on Sept. 10], but we’re not in the same place,” said Hugh A. Johnson Jr., chief strategist for First Albany Corp. “War has changed the world, and I have to be so hardhearted as to say it’s for the better--at least for the market and the economy.”
Johnson cited the estimated $100 billion in the pipeline for economic stimulus--a full 1% of annual U.S. economic output--plus a record $2.2 trillion stashed away by Americans in money market accounts. If investor confidence gains strength, he said, some of that cash could find its way into stocks.
President Bush and congressional leaders and economic policymakers have been debating the best way to craft a stimulus package so that it delivers quick economic relief.
In Johnson’s view, a rising stock market does the trick by boosting household wealth, which encourages people to spend money and in turn gets business production rolling.
Few analysts expect corporate earnings to rebound with any strength before mid-2002, as the nastiest profit recession since the early 1990s remains firmly in place. However, the coming wave of earnings reports may at least give signals that companies’ cost-cutting efforts are having an effect and the way is being cleared for earnings improvements next year.
Absent another severe terror attack or U.S. military setback, that could pave the way for a sustained market recovery, analysts said.
“Maybe initially, it made sense to hunker down [after Sept. 11],” First Albany’s Johnson said. “But now it may be the wrong thing to do.”
