`Awful' week of losses stuns financial world

Dow average off 14%

uncertainty lingers

Terrorism Strikes America

Business Impact

September 22, 2001|By Bill Atkinson | Bill Atkinson,SUN STAFF

The clanging of the bell, precisely at 4 p.m. yesterday on the New York Stock Exchange, mercifully ended the worst week in the market's history, as battered stocks sank for the fifth day since reopening after last week's terrorist attacks.

In what had already been an unnerving week, Wall Street saved some of its best shots for last with the Dow Jones industrial average climbing and then nose-diving much of the day, finally closing down 140.40 points, or 1.68 percent, to 8,235.81.

About 12 minutes after trading began, the Dow had plunged 294 points. Within an hour it recovered 376 points, only to fall 212 points in the next 11 minutes.

"If this was a fight, they would have stopped it," said John Boo, head of Nasdaq trading at Ferris Baker Watts Inc. in Baltimore. "This is awful. People just got totally rolled up, the selling fed on itself with margin calls and forced liquidations. It was very hard to get anybody to step in."

Other indexes slid, too, with the Nasdaq composite index, which is heavily weighted with technology companies, losing 47.74 points, or 3.25 percent, to 1,423.19. The Standard & Poor's 500 stock index, a broad gauge of the market, lost 18.74 points, or 1.90 percent, to 965.80.

Trading was heavy, with more than 2.3 billion shares changing hands on the New York Stock Exchange.

It was the worst week in the market's history, wiping out $1.4 trillion in market value. The Dow shed 1,369 points, or 14.3 percent; the Nasdaq lost 272 points, or 16 percent; and the S&P 500 fell 126 points, or 11.6 percent.

The week couldn't have ended soon enough for investors and those who work on Wall Street.

The sell-off began immediately when trading resumed Monday, after the markets were closed for four days after terrorists attacked the World Trade Center and Pentagon on Sept. 11.

The Dow dropped a record 684.81 points that day despite the Federal Reserve Board cutting interest rates by a half-percentage point - the eighth reduction this year.

Torturous to watch

The next day was essentially flat, but on Wednesday, the Dow jolted investors again, dropping 423 points before a last-minute rally pared losses to 144 points. Thursday was worse, with the Dow plunging 382 points as investors brushed aside encouraging words from Federal Reserve Chairman Alan Greenspan about the economy's strength.

"I have not seen anything like this in my career," said Joseph Battipaglia, chief investment strategist at New York-based Gruntal & Co., a 20-year veteran of the brokerage business.

David M. Citron, a money manager at Carret and Co. in Baltimore, said this week's drop was worse than the Oct. 19, 1987, crash when the Dow lost 508 points, or 22.6 percent, in a single day.

"I remember '87 and people were shell shocked from that," Citron said. "It is the difference between being sliced once as a opposed to a bloodletting. It is Chinese water torture."

`Too early to tell'

Thom Melcher, chief investment officer at Philadelphia-based PNC Advisors, described the last five days as "easily ... one of the top three worst weeks [for the market] in the last century."

"From an emotional standpoint this clearly was a difficult week. From an economic standpoint it was a difficult week," he added.

Many experts thought the market was nearing bottom after Monday's sharp sell off. But yesterday they hesitated in predicting how low stocks may fall.

"As far as a bottom, it is still too early to tell," said Steven B. Young, senior market strategist at Banc of America Capital Management in St. Louis. "The magnitude and duration of the impact of the [terrorist] attack is still unclear."

"It would be foolhardy to try to put a number out," Battipaglia added.

But he noted that the week's decline "looks like a massive capitulation."

"It has fear, it has indiscriminant selling, it has a fatalism to it in selling that begets more selling. For all of those reasons this may well be the worst of it," Battipaglia said.

He said the seeds of bull markets are sewn during crises, though. Twelve months after the Iranians took U.S. hostages in 1979, the market rebounded 20 percent, he said. And after the United States attacked Iraq in 1991, it "gave way to the bull market."

"Could this be the start of the first bull market of the 21 century? Very likely," Battipaglia said.

`Continued unknowns'

But whether the market rebounds depends on several unknowns, experts said. If the country has slipped into recession, how long will it last? Will corporate profits rebound any time soon? And will consumer confidence continue to slip?

"There is still too much adjustment going on," Young said. "It is just too fluid."

An even bigger question is how long will the country's war against terrorism last? Will it be swift, or drawn out?

"If we take the war scenario out of the picture for the moment, I could confidently say we are 5 [percent] to 10 percent from rock bottom in the market," Melcher said. "It is the continued unknowns."

While many were relieved that the weekend had finally arrived, the respite means little for the market. Events today and tomorrow will likely determine whether stocks fall or rise on Monday, experts said.

"Who knows?" said Robert D. McDorman Jr., who manages the UAM/ICM Small Company Portfolio at Investment Counselors of Maryland in Baltimore. "What if Sunday we wake up and bin Laden [Osama bin Laden, the alleged mastermind behind the terrorist attacks] is somehow turned over."

Such news would spark a rally "just out of reflex," McDorman said.

But there is clearly a sense of nervousness about the coming week that even humor can't mask.

"I was horrified to learn that we would have to come back [to work] on Monday," joked Boo, the Ferris, Baker trader. "The market was atrocious."

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