Investors Edgy Ahead of Markets’ Opening
Investors worldwide are bracing for today’s trading session amid fears that Friday’s massive stock sell-off will trigger an even bigger plunge as markets reopen.
The head of the New York Stock Exchange on Sunday pleaded for calm, but the NYSE and other major U.S. markets said they had no need for any contingency plans.
In the Far East, stock markets opened sharply lower on worries of what might be ahead for Wall Street. But some Asian markets quickly pared their losses.
The Japanese market fell 2% as it opened but recovered to close off only 0.13%--virtually unchanged. Taiwan’s index dropped 2.3% by its close. The Australian market slid 1.8% at the opening but later was off 1.1%.
Friday’s U.S. market dive, which pulled the Dow Jones industrial average down 390.23 points to 8,019.26--the lowest level since 1998--was the worst day yet in nearly nine weeks of almost relentless selling, as investors’ collective mood has darkened. NYSE trading volume set a record Friday, topping 3 billion shares.
Still, the remaining market optimists continue to say an improving economy and still-buoyant consumer sector should eventually lift the market and could even spur a major rally today.
But a wave of corporate accounting scandals has crushed many investors’ faith in stocks and helped fuel more selling, extending the current bear market to 28 months, the longest since the 1940s.
Attempts by President Bush and Federal Reserve Chairman Alan Greenspan last week to focus investors on the positives--mainly, a still-recovering economy--failed to halt the selling. The Dow sank 7.7% last week, and 4.6% on Friday alone.
Many stocks are at their lowest prices in at least five years, and the blue-chip Standard & Poor’s 500 index is down 44% from its record high reached in March 2000. That already ranks as one of the biggest declines of the last century.
Yet analysts worry that many more investors will be tempted to bail out, fearing that stocks are poised to go dramatically lower.
NYSE Chairman Richard Grasso on Sunday said today could bring a torrent of selling. “Mondays following Friday declines have always been difficult, and I suspect tomorrow will be no different,” he said on NBC’s “Meet the Press.”
Indeed, many market pros still have vivid memories of Monday, Oct. 19, 1987, when the Dow plunged a record 22.6% after heavy losses the previous week.
But analysts noted that there is no way to predict how the market will fare today. Although many investors may have placed “sell” orders with their brokers over the weekend, they could rescind those orders early today. What’s more, there is no way to judge in advance how much buying interest may develop once trading begins.
Last Monday, the Dow fell 440 points in early trading, but recouped nearly all of that loss by the closing bell.
On Friday, the NYSE and the Nasdaq Stock Market said their systems are capable of handling far more volume than has occurred recently, so they needed no contingency plans for today.
A spokesman for the Securities and Exchange Commission on Friday declined to comment on whether the agency was taking any additional steps to prepare for today’s trading.
“Circuit breakers” that have been in place for the last decade would halt trading for one hour if the Dow falls 950 points (about 11.8%) before 2 p.m. EDT. Once the market reopened, if the Dow were to decline 1,900 points in all (about 23.7%), trading either would halt for two hours or, if the decline were late in the day, the market would close for the session.
On Monday, Sept. 17 of last year, when trading reopened after a four-session halt in the aftermath of the terrorist attacks, the Dow tumbled 684.81 points, or 7.1%, to 8,920.70.
On Sunday, NYSE Chairman Grasso urged investors to stay calm. “Please be patient,” he said. “Please don’t do something that emotionally feels good but in the long term will be a mistake.
“Over the course of the last 10 years, the market, with all of the aberrational downdrafts that we’ve seen, has gone up,” Grasso said. “And I believe over the next 10 years the same will be true.”
Abby Joseph Cohen, chief investment strategist at brokerage Goldman Sachs and one of the market’s best-known cheerleaders in the boom years of the late 1990s, said investors may be losing sight of the economic fundamentals.
Appearing Sunday on CBS’ “Face the Nation,” Cohen described “an economy which is growing, labor markets which are stabilizing, and inflation which is under control.... I think the direction for stock prices is higher, not lower.”
But for the last two years, small investors have repeatedly been urged by financial advisors to keep their money in the market, even as stocks’ losses have deepened.
The average U.S. stock mutual fund has plummeted 23% this year after dropping 10.9% last year and 1.9% in 2000, according to fund tracker Morningstar Inc.
Allen Sinai, chief global economist at Decision Economics Inc. in Boston, warned on “Face the Nation” that there was a significant risk of “another 8% or 10%, possibly, down before we could bottom out.”
“The stock market collapse ... is going to do damage to consumption and housing,” Sinai said. “That will slow the economy down more. It could create another recession. And that in turn is going to disappoint everyone” on corporate profits, he said.
Meanwhile, foreign investors remain a wild card: They are believed to be substantial sellers of U.S. stocks this year, as the weak dollar has exacerbated their losses.
Sinai said that, because the Federal Reserve already has cut short-term interest rates to 40-year lows, it isn’t clear what more policymakers could do to help the market--or the economy, if it falters.
“We don’t have a lot we can do with policy to combat that if it happens,” he said.
James Paulsen, chief investment officer at Wells Capital Management in Minneapolis, said he believes that a key element weighing on stocks is “concern over Fed impotence.... We’ve had a long time for rate cuts to take effect, and it just isn’t working” for the market. “There’s no real surety the Fed has any bullets left.”
What’s more, Paulsen said, if the Fed opted to cut rates in the face of a deeper market plunge, “it would escalate panic, because people would go, ‘My gosh, the Fed’s even scared.’ ”
Still, the severity of last week’s stock losses, and the record NYSE trading volume on Friday, bolstered the argument that the market is nearing at least a short-term bottom, many analysts said. Historically, stocks have reached their lows when investor sentiment was at its gloomiest.
“I don’t recall so much pessimism about both the short-term and long-term outlook for stocks,” said Edward Yardeni, veteran market strategist at Prudential Securities in New York.
But peaks in pessimism are only evident in retrospect, experts note. In other words, there is no way to know how much worse investors might come to feel about stocks as the market bubble of the late 1990s continues to deflate.
Although principal measures of stock valuations, such as price-to-earnings ratios, have come down with the collapse of share prices, many stocks still “are not cheap” when judged historically, said Chip Hanlon, editor of investing newsletter Unfundamentals.com in Huntington Beach.
That’s one reason he isn’t convinced that the long bear market is ending, even though he is confident that a short-term rally will ensue soon. “Just as the bull market went to extremes, valuations on the downside could get extreme, if history is a guide,” Hanlon said.
Times staff writers Josh Friedman, E. Scott Reckard and Peter Gosselin contributed to this report.
