It’s a Bull Market for Anxiety
Wall Street’s crisis of confidence deepened Monday as investors drove stocks to their lowest levels in eight months.
The latest jolts came from Tyco International Ltd. and El Paso Corp. Tyco’s chief executive quit Monday amid a probe into possible tax evasion, while the suicide Sunday of the treasurer of energy trader El Paso stirred memories of the death of a top Enron Corp. executive several months ago.
Monday’s plunge, which clipped more than 200 points off the blue-chip Dow index, was seen as the latest no-confidence vote from investors already reeling from the Enron accounting scandal and the collapse of the onetime energy trading giant; the widespread probe of alleged conflicts of interest among Wall Street brokerage analysts; and the two-year bear market that has erased two-thirds of Nasdaq’s value.
In another sign of weakening commitment to the stock market, figures released Monday show that corporate executives are selling a lot more of their companies’ stock than they are buying.
“There is absolutely no greed left in the system, only fear,” said Philip Dow, director of equity strategy at brokerage RBC Dain Rauscher in Minneapolis. “It’s almost in fashion to be negative now, which speaks to a big psychological change. A few years ago the mind set was ‘buy on the dips.’ Now it’s ‘don’t trust anything.’”
The Dow Jones industrial average tumbled 215.46 points, or 2.2%, to 9,709.79, in the biggest one-day drop since Feb. 4. The Nasdaq composite index, home to many of the most widely traded technology and telecom stocks, shed 3.3% to fall to its lowest close since Oct. 2.
Individual investors said scandals and portfolio losses were leaving them exasperated.
“We are tired and we have had it,” said Frank Glaser, a retiree from Rancho Palos Verdes. “Can we trust the accounting? No. That’s been proven to us. Can we trust the brokers? Absolutely not. The little guy is at the end of the food chain. We haven’t got a chance.”
Glaser said he had stopped buying stock these days, noting: “I am worried that the stock market is going to affect the rest of the economy. If people start looking at their stock losses, are they going to keep going on like nothing is wrong? I am very concerned.”
On Monday, investors bent on selling stocks ignored surprisingly upbeat economic data, in this case a report showing that U.S. manufacturing expanded in May at the fastest pace in more than two years.
Analysts said continuing weakness in the dollar, which makes U.S. securities less attractive to foreign investors, and rising unrest along the India-Pakistan border also have spurred selling in recent weeks. The euro and the Japanese yen rallied anew Monday versus the dollar.
Despite generally favorable U.S. economic news this spring, waning investor confidence raises the specter of key market indexes sinking below the three-year lows reached when trading resumed after the Sept. 11 terrorist attacks.
The benchmark Standard & Poor’s 500 index, down 2.5% on Monday to an eight-month low, has lost 9.4% this year, putting it on pace for a third straight down year for the first time since 1939-41.
The Nasdaq index is down nearly 20% this year after losing 39% in 2000 and 21% last year.
If investors are losing faith in scandal-ridden corporate America, executives are showing little confidence in themselves, some analysts say: During the last eight weeks, transactions in which corporate officers, directors and large shareholders have sold shares of their own companies’ stock have swamped purchases by more than 4 to 1, said David Coleman, editor of the New York-based newsletter Vickers Weekly Insider.
Historically, stock sales by corporate executives have outnumbered purchases by closer to 2 to 1. At the time of the market’s September lows, by comparison, the ratio of sales to purchases was a rousingly bullish 1 to 1.
“Insiders are looking for better places to put their money these days than in their own companies,” Coleman said. “We’re seeing across-the-board selling in most industries, and at the highest ratio since the mid-1980s. This sends a dangerous signal about the market.”
Strategist Dow concurred: “They’re probably depressed, just like everyone else.”
Mutual fund managers say morale isn’t much better in the ranks of professional money managers.
“I’d rather have one big washout like October 1987. What’s painful is this daily water torture,” said Beverly Hills-based Shelly J. Meyers, manager of the Citizens Value Fund. “We’re in a headline-driven market that seems to get worse and worse on a daily basis. Today it’s Tyco and the shock of another suicide in the energy merchant sector, tomorrow something else.”
Tyco plummeted $5.90 to $16.05 a share, leaving it down 73% year to date, as CEO L. Dennis Kozlowski resigned after news circulated that he is being investigated for possible sales tax evasion in New York state.
El Paso, meanwhile, lost $3.70 to $21.95 as Treasurer Charles Rice’s suicide rattled investors already worried about federal and state investigations into the energy trading industry.
Meyers said “contagious” selling was dragging down many major stocks.
General Electric Co., for example, which might have been expected to get a boost from Monday’s robust manufacturing data, instead slid $1.03 to $30.11 a share as investors avoided any acquisitive conglomerate that might be likened to Tyco, whose complex accounting has drawn criticism.
The market’s downdraft hasn’t sunk every investor. Some cashed out months ago and are patiently waiting for a rebound.
“Two years ago, I put most of my pension plan in [bonds],” said Barry Zalma, a Culver City attorney. “I’m chicken and I’m getting older.
“But the market will come back. When it does, I’ll take money and put it back in the marketplace.”
