Markets sag on fears of terrorism

`Emotion at center stage,' eyes on Mideast, Taiwan

March 23, 2004|By Jamie Smith Hopkins and Bill Atkinson | Jamie Smith Hopkins and Bill Atkinson,SUN STAFF

Investors with little economic news to go on but plenty of terrorism fears sent U.S. stocks sharply downward yesterday.

The Dow Jones industrial average sank 121.85 points, 1.2 percent, while the Nasdaq composite index shed 30.57 points, 1.58 percent. The Standard & Poor's 500 index lost 14.38 points, a total of 1.3 percent.

"Emotion's at center stage," said Andy Brooks, vice president and head of equity trading at T. Rowe Price Associates Inc. in Baltimore.

"We were captive to the geopolitical stuff today."

Investors were concerned primarily about retribution after Israel's killing of the founder of the Palestinian militant group Hamas, analysts said.

Aftershocks from the Taiwanese election - the results were challenged, and that country's stock market plunged - also sent American stocks lower.

After rising against the euro Friday, the dollar slipped yesterday with the euro rising to $1.2337, up from $1.2279.

David L. Straus, senior portfolio manager at Johnston Lemon Asset Management in Washington, called yesterday's market decline a terrorism "hangover."

"The greater fear in the market is ... once again the unknown - what's next," said Michael Barron, chief executive of Knott Capital Management in West Chester, Pa., an investment advisory firm.

A decade ago an Israeli-Palestinian clash would have been ignored by the market, but investors are much more sensitive to international security now, he said.

The Dow Jones opened down yesterday morning, after earlier drops in Europe, and spent most of the day headed further downward. The Dow is off 613.39 points since the beginning of the month, 109.18 points of which were lost Friday.

"The market is a forward-looking vehicle," Barron said. "It's beginning to look into the prospects for continued slower growth, continued weak employment growth; and obviously the concerns about terrorism and reprisals and international incidents are most certainly here to stay."

But some of the recent volatility is driven by a "herd mentality" exacerbated by hedge funds, he said.

Straus said the market has been due for a decline, or correction, because it climbed for nearly a year without a significant drop.

"It seems to me we are in this normal corrective mode within the context of an ongoing bull market," he said. "We seem to be in the process of making some kind of bottom here.

"As the first-quarter earnings come out, they are probably going to be viewed as positive enough to turn this market around."

Straus said he expects the stock market to rise 15 percent from the current levels and finish the year in positive territory.

But at the moment investors are being particularly negative.

Stocks fell the past two Mondays, which says to Straus that investors are thinking about their holdings over the weekend and selling when the market opens.

"The bruises and the trauma of the three-year bear market really are still there up on the surface for many investors," said James Thorne, senior portfolio manager at M&T Bank in Baltimore.

"Although we have had one good year, people are very, very leery and very, very concerned."

But there's an upside, Thorne said: He is picking up good companies at bargain prices.

"I am looking for stocks that have a strong franchise, that have good earnings potential," Thorne said.

"I am trying to quell my emotions."

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