Late Rally Curbs Steep Stock Slide
Economic woes and continuing political uncertainty sent stock markets into a steep slide again Wednesday, although a late rally minimized the damage.
The Dow Jones industrial average sank 144.27 points, or 1.6%, to 8,759.13, lowest since December 1998.
Other leading indexes ended with similar declines: The Nasdaq composite index dropped 27.28 points, or 1.8%, to 1,527.80 and the Standard & Poor’s 500 slid 16.64 points, or 1.6%, to 1,016.10.
Declining issues led advancers by more than 3 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq. Trading volume was very heavy.
Still, the market finished well above its lows of the day, a turnaround some attributed to news that the U.S. was beginning to move more forces to the Persian Gulf. There was also a sense that the day’s selling, which saw the Dow down as much as 423 points in midafternoon, might simply have been overdone.
Stocks roared back when “it got to the point where valuations didn’t make sense, given that the profit damage for a lot of these companies is short-term,” said Dennis Ferro, chief investment officer at Evergreen Funds. “It’s raining bad news, but it’s not going to rain bad news forever.”
“Short covering”--buying by traders who had previously sold borrowed shares, betting on lower prices--also helped stoke the late rally, analysts said.
At the lowest point Wednesday, the Nasdaq composite was 71.3% below its March 2000 peak, while the S&P; was under 1,000 for the first time since October 1998.
Wednesday’s initial hard sell-off--coming on the heels of losses Monday and Tuesday--once again raised the question: Who is selling? Despite patriotic appeals that American investors refrain from dumping stocks in the aftermath of last week’s terrorist attacks, the Dow industrials have fallen nearly 9% since Wall Street reopened Monday after a four-day shutdown.
For mutual fund managers, at least, the reasons to sell are varied.
Some managers may be shifting money into less-risky fixed-income investments, Ferro said. His firm, already “defensively positioned,” is making “no meaningful shifts,” he said.
Portfolio managers are only one factor in the market, of course.
Ferro noted that foreign investors appear to be pulling money out of U.S. stocks as the dollar continues to slide.
And individual investors, though not panicking, on balance are pulling money out of their stock funds.
TrimTabs.com Investment Research estimated Wednesday that a net $7.5 billion was withdrawn from domestic stock funds Monday and Tuesday combined.
That was far below a two-day record of $13.1 billion and well under TrimTabs’ expectations, said Carl Wittnebert, the firm’s director of research. TrimTabs was bracing for $10 billion in net redemptions Monday alone, but its sampling shows that only $1.8 billion was taken out that day.
“It’s shocking how people weren’t more scared,” Wittnebert said. “Part of this must be the patriotic buying or holding, but there is also a certain amount of mystery.”
Yet fund managers could be selling stock just in case heavy withdrawals occur, taking a better-safe-than-sorry approach.
“Mutual fund managers worry about redemptions, so they are definitely raising cash,” said Fritz Reynolds, manager of the Reynolds Blue Chip Growth Fund. “The typical fund might normally have a cash position of 3% or 4% of assets, but there’s a sense that maybe you should have at least 10% during tough times.
“These are tough times.”
His blue-chip fund has a cash reserve of about 30% and his other two funds have as much as 70% in cash, Reynolds said, so he isn’t selling--but he isn’t buying stocks yet because of the still-unfolding global crisis.
Erik Gustafson, manager of the Liberty Growth Stock Fund, said his fund has seen redemptions but “nothing overly heavy.” So he has been a net buyer in the last three days, bargain-hunting in the pharmaceutical, medical-device, wireless and semiconductor industries, he said.
Charles Schwab Corp. has seen “modest” fund redemptions this week, spokesman Morrison Shafroth said.
Still, fund companies are taking a variety of measures to prepare for redemptions.
OppenheimerFunds Inc. and AIM Management Group Inc. are letting their mutual funds borrow money temporarily in case redemptions rise in the wake of last week’s terrorist attacks, according to Bloomberg News.
Meanwhile, with Sept. 30 approaching, some fund managers are sprucing up their portfolios for the end of the quarter.
“Whether you want to call it ‘window dressing’ or whatever, they know they are going to have to print their portfolios in a couple of weeks or post them on their Web sites,” Reynolds said. Among the day’s highlights:
* Foreign markets were mixed. Key indexes fell 3.7% in Germany, 2.6% in Britain and 2.1% in France, but rose 1.8% in Brazil and 2.7% in Japan, although Japanese stocks were falling in early trading today.
* Among Dow components, Eastman Kodak fell $2.22 to $37.61 after it lowered third-quarter profit estimates and warned of more layoffs. And Boeing lost 53 cents to $32.61 after announcing late Tuesday that it may cut as many as 30,000 jobs.
Other heavy-industry stocks off sharply included DaimlerChrysler, down $1.52 to $31.16; Deere, off $1.70 to $37; and 3M, down $1.69 to $92.45.
* Charles Schwab lost 56 cents to $9.45 after the firm issued a profit warning for the quarter ending Sept. 30, pointing to the trading halt following the Sept. 11 terrorist attacks. Elsewhere in the brokerage sector, Merrill Lynch fell $1.31 to $38.50.
* Adobe Systems lost $4 to $26.10 after trimming its near-term revenue projections.
Market Roundup, C7, C8
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Losses in Key Market Indexes
Here is how much key stock market indexes have fallen this week and from their all-time peaks.
*--*
Wed. Percentage change: Index close This week From peak* Nasdaq composite 1,527.80 -9.9% -69.7% S&P; small-cap 191.32 -9.0 -19.2 Dow industrials 8,759.13 -8.8 -25.3 S&P; mid-cap 428.79 -8.2 -21.8 S&P; 500 1,016.10 -7.0 -33.5 NYSE composite 529.38 -6.8 -21.9
*--*
* Most indexes peaked in 2000; the S&P; small-cap index peaked in May this year.
Source: Bloomberg News
