Emotions Rule Nation’s Financial Heart

Stock strategist Joseph Battipaglia was sound asleep one recent night when lightning from a rainstorm jolted him awake.

“It sparked me right out of the bed,” Battipaglia recalls. “I thought it was an explosion.”

Though the New York Stock Exchange reopened to great fanfare Monday--with many brokers and traders declaring their relief at returning to work--people in Manhattan’s financial district, as much or more than anywhere in the city, remain deeply affected by the terrorist assault on their home turf.

A concern that is only beginning to be discussed: How much might the anxiety on Wall Street, the nation’s financial heart, extend beyond the district and negatively affect the already tattered stock market?

Stock prices, after all, are propelled by optimism--about the economy, corporate earnings and, in a general sense, the future.

But optimism among many of the stock market’s biggest players and opinion-makers has been subsumed by jitters over working in Manhattan. The less secure they feel, the less inclined traders may be to buy stocks or analysts may be to churn out upbeat reports.

“It’s really tough to be bullish in the face of so much horror,” said Ken Sheinberg, head of listed stock trading at SG Cowen in New York.

Some people reject the idea that Wall Street’s trauma could help fuel another downturn in share prices. They say stocks are being driven lower by the sober logic of global investors reacting to fears about the economy and the threat of war.

With the terrorist attacks further threatening a shaky economy, a stock-market sell-off last week was expected, many here say. “I don’t think the whole stock market goes down because people in physical proximity to the exchange are depressed,” said Charles Blood, investment strategist at Brown Bros. Harriman who works a couple of blocks from the NYSE.

Still, it may be hard to overestimate the lingering emotional effect on Wall Street. In the tightknit financial community, many people either knew someone who died in the attacks or, at the least, know someone who knew someone.

Reminders of the tragedy are all around. The massive cleanup effort is centered in the financial district, a few blocks from the NYSE. Missing-person posters still are tacked up. People are attending multiple funerals.

There are many discussions about no longer wanting to work in Manhattan. “Everybody’s talking about that,” said Battipaglia, who works at Gruntal & Co.

For employees at some financial firms, logistical problems continue to block a return to normality. Brokerages such as Lehman Bros. and Merrill Lynch, which were located near the World Trade Center, can’t yet return to their offices and have had to scramble to find replacement space.

Their employees face a daily series of inconveniences, none major by themselves but exhausting when combined: Voicemail and e-mail often are unavailable. People rely more than ever on cellular phones, but must remember to recharge batteries before they expire. Scores of workers endure longer and more arduous commutes on unfamiliar subway and bus lines.

Lehman had 600 employees occupying three floors in one of the trade center towers. It lost one person. But its corporate headquarters was across the street, and the firm doesn’t know when or whether the 7,000 people who were based there can return.

On Monday, Lehman went to two temporary sites. About four-fifths of the staff went to a Lehman complex in New Jersey, while about 1,500 employees set up makeshift offices in the Sheraton Manhattan hotel in midtown.

At the hotel, beds and mattresses were discarded in favor of folding tables and fax machines. One investment banker bought dozens of doorstops at a local hardware store so people could prop open doors and talk to each other.

“You appreciate being able to find things,” said investment banker Chris Harnet. “Finding phone lists. Finding computers that work.”

In the hotel’s conference center, stock analysts are crammed into first-floor meeting rooms now encircled by computer cables. Though stock research departments normally are sedate, the meeting rooms buzz like trading floors as people run around, trying to get their bearings.

“The first day was really confusing,” said Hannah Burns, a Lehman spokeswoman. “I didn’t know where I was going.”

Wireless-services industry analyst John Bensche sits in one meeting room, an American flag and some photos tacked up on a wall beside him.

His industry appears to be one of the few whose prospects have brightened. Cell-phone sales have ticked up as Americans worry about emergencies.

Still, Bensche is careful to temper any bullishness. “It would be unseemly and do damage to client relationships if you came out with a hugely bullish [research] note now” that appeared to take advantage of the catastrophe, he said.

Across Wall Street, traders and analysts say they’re trying hard to set aside emotions and focus on their jobs.

Early in the week, many professional traders didn’t want to be in the market, Sheinberg said. “They felt guilty if they made money,” he said.

Some veteran Wall Street pros say the downbeat mood can’t help but weigh on stock prices and the market opinions disseminated from Manhattan to the rest of the nation.

David Dreman, a longtime money manager and co-founder of the Institute of Psychlogy and Markets, pointed out that very few “buy” recommendations were issued last week.

That’s partly to be expected given that the economy and corporate earnings are likely to suffer further in the near term. But Dreman believes it also is because of the mood in lower Manhattan.

“It’s not a state of shock anymore, but it’s a state of being depressed,” he said. “And when you’re depressed, you look at the dark side of things and not the possibility the economy could be very strong again.”

Dreman believes the emotional damper on the market will be short-lived. Though investors often panic in times of crisis, they later settle down and the market revives, he noted.

Even so, traders say raw emotion--always important in the market--is an especially powerful force now.

“So much of stock trading is driven by emotion, but now the juices are really flowing,” said Ted Weisberg, a floor broker at the NYSE.

Weisberg and others point out that stock prices ultimately are determined by large institutional investors, not by traders on Wall Street swinging into and out of individual stocks each day.

But the mood of traders can set short-term trends. And right now, many traders say they’re still trying to keep perspective in the aftermath of the attacks.

“Do I feel the same as I felt [before the attacks]? Absolutely not,” Weisberg said. “Do I feel nervous? Absolutely.”