Investors, banks shaken up
Less than an hour after the stock market closed Monday with a record 777-point drubbing in the Dow Jones industrial average, financial planner Mark Wilson got an anguished call from a longtime client.
The client, a woman in her late 50s who was nearing retirement, had become so frightened by the market’s wild swings over the last month that she instructed Wilson to sell all her stocks.
“She said, ‘I can’t take the volatility. Get me out of the market,’ ” said Wilson, a planner at the Tarbox Group in Newport Beach. “She was fed up.”
The continuing fallout from the mortgage meltdown and housing downturn has made the stock market jumpy all year.
If the rest of 2008 follows the first three quarters, it will be by one measure the third most volatile year since the Great Depression.
In the last few weeks, as the financial crisis has intensified, the price changes have grown especially jarring.
“I’ve been doing this 17 years, and I can’t remember a time when you’ve come in and seen the market up or down so much so many days in a row,” said Kevin Kruszenski, director of trading at KeyBanc Capital Markets in Cleveland.
After its plunge Monday, the Dow leaped 485 points Tuesday only to sink 348 points Thursday.
Even on Friday, when the blue-chip average fell “only” 157 points, share prices swung furiously during the trading session.
The Dow rocketed more than 300 points before the House’s passage of the $700-billion financial-system bailout bill -- then gave up nearly all of that gain within 30 minutes.
“Last week I thought was nuts, and this week was worse,” said Anton Schutz, head of Mendon Capital Advisors in Rochester, N.Y.
The volatility reflects investors’ Jekyll-and-Hyde emotions, which have seesawed between fear over the flailing economy and the collapse of major financial institutions to enthusiasm at the notion of the rescue plan spurring a recovery.
“You come in one day and everything’s good, and the next day everything’s bad,” said Paul Hickey, co-founder of Bespoke Investment Group in Harrison, N.Y.
“From day to day, the market has completely different takes on things.”
The sprawling fluctuations have even been tough on Wall Street traders, who normally love volatility because it brings opportunities for quick profits.
The market’s violent moves have made it “almost impossible for anybody to catch the turns,” said Jordan Kimmel, a New Jersey hedge fund manager. “For most people, it’s a very tough environment to make money.”
That’s translating into loads of emotional distress on Wall Street, said New York psychiatrist Ari Kiev, whose specialty is teaching hedge fund traders how to control their emotions.
“More people than not are in a state of frustration, of high anxiety,” he said.
The broad-based Standard & Poor’s 500 stock index has risen at least 1% on almost 20% of trading days this year and fallen by that amount 25% of the time, according to Standard & Poor’s Corp.
The combined 45%, if it holds up, would make this the eighth most volatile year since 1928, and No. 3 since 1938.
Last month tied January as the most volatile month of 2008.
For the Dow, triple-digit moves -- once a notable occurrence -- are now the rule.
The index has risen or fallen at least 100 points more than half the time this year, compared with fewer than a third of trading days in 2007.
Another closely watched gauge -- a measure of expected volatility implied by trading in stock-index futures -- is at its highest level in more than a decade.
“The market is like Sybil -- multiple personalities,” said Howard Silverblatt, a senior index analyst at Standard & Poor’s.
That’s creating nightmares for even the heartiest individual investors.
Brad Morris, a 26-year-old Tampa resident, had an $800,000 stock portfolio a year ago. But the market’s wild swings led him to gradually move more than half of it out of stocks.
“The market doesn’t move 50 points a day anymore. Now it’s 200 points up, 200 points down, 300 points up, 300 points down,” Morris said.
“After living through the dot-com bubble, you think you’ve seen it all, but this is a lot worse.”
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