Wall Street rattled by terrorism, uncertainty

Dow drops by 137 points

economy, energy prices, election among concerns

March 16, 2004|By Bill Atkinson and Eileen Ambrose | Bill Atkinson and Eileen Ambrose,SUN STAFF

Revived fears of terrorism in the wake of the attacks in Spain jolted an already fragile stock market yesterday, sending the Dow Jones industrial average down more than 130 points.

The Dow, which closed yesterday at 10,102.89 points, has plunged by 218 points since Thursday when terrorists bombed Spain's train system, killing at least 200 people. The evidence points to the attacks being the work of al-Qaida terrorists who were responsible for the attacks that killed nearly 3,000 people Sept. 11, 2001, in the World Trade Center towers.

The attack in Spain raised fears that U.S. rail and mass transit systems could be targets. And the declared intention of Spain's new leader to abandon that country's commitment of forces in Iraq added to investor uncertainties.

"Terrorism has gone from the back burner to the front burner," said William E. Lauer, chief investment officer of Chevy Chase Trust Co. in Bethesda. "The market doesn't like the uncertainty. Al-Qaida is doing what it wants to do and when that happens there is a lot of fear in the markets. I think it is a grave concern right now."

Investors also are questioning the strength of the economy, especially with the job market struggling, and they are uneasy about rising energy prices and the uncertainty of the election.

"I think terrorism is a convenient explanation, but the concern is rooted more in the fact that there aren't economic points of strength to overtake terrorism," said Thomas Melcher, a chief investment at PNC Advisors in Philadelphia. "If we saw good job growth, if corporate profit growth continues to be steady and inflation continues to be in check, then you are in a better position to shake off terrorism."

Another `uncertainty'

Chuck Carlson, chief executive officer of Horizon Investment Services in Hammond, Ind., said terrorism "adds one more uncertainty in the marketplace that didn't exist a week ago."

Another concern for investors is the presidential race, which is heating up and could be closer than first expected.

"Certainly, the uncertainty of the presidential election is starting to gain some momentum," said Andrew Brooks, head of equity trading at Baltimore-based T. Rowe Price Associates Inc.

"It's not a slam dunk that Bush will win," Carlson said.

The market is thinking about the possibility that Democrats will control of the White House and President Bush's tax cuts on dividends and capital gains might be repealed, which would have a big negative impact on stocks, he said.

Brooks mustered up one word to describe yesterday's action in the stock market - "ugly."

Only one of the Dow's 30 stocks, United Technologies Corp. - a major defense contractor - rose and the index lost 137.19 points, or 1.34 percent. Since hitting a high Feb. 11, the Dow has slid 634 points, or 5.9 percent.

Other benchmarks fell, too, including the Standard & Poor's 500 stock index, which dipped 16.08 points, or 1.43 percent, to 1,104.49 points. The technology heavy Nasdaq composite index lost 45.53 points, or 2.29 percent, to 1,939.20.

Experts said the market has been primed for a pullback because it has risen so rapidly since last March, powered by strong advances of many technology stocks. The Dow climbed about 41 percent from March 11 last year to March 5, before it began sputtering and posted several days of sizable losses.

"It's time for a breather," said Dan McHugh, president of Lombard Securities in Baltimore.

He dismisses terrorism's role in the market decline. Terrorism has been "digested and priced into the market," he said.

If history repeats itself, McHugh said, the market will move down or sideways for a month to 45 days.

Still, it should be a good year, McHugh said, predicting that the market would rise about 10 percent. That compares with a 26 percent gain last year for the S&P 500 index.

Investors have been moving toward steadier blue-chip stocks and away from aggressive technology investments that had done so well last year.

Lauer, the investment officer at Chevy Chase, said he is rotating out of some technology stocks and into more defensive plays, such as oil companies and businesses that offer high dividend yields.

"There is a general feeling that the market is fully valued," and knowledgeable investors are having a difficult time uncovering bargains, said Patrick Buttarazzi, vice president of investments for UBS Financial Services in Baltimore. "It's a skittish market. At this point, it's hard to think we will have back-to-back 30 percent up years."

Changed reaction

Buttarazzi has noticed a change in the way investors react to bad news. In the 1990s when the market was soaring, investors would buy and hold their stocks through tough times, or even purchase more shares on market dips. Today, investors are more likely to sell on bad news and patiently sit on the sidelines.

While terrorism might never fade, experts believe that the market will adjust to the challenge and move ahead.

"Not only can the market shake the terrorism bug, but it will shake the terrorism bug," Melcher of PNC said. "I think what is hard for everyone to understand ... the history of the stock market is one that says when really bad things happen ... more often than not in hindsight it proved to be an investing opportunity."

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