General News
Wednesday, September 12, 2001
Don’t Expect Financial Uproar, Market Veterans Say
By David Saito-Chung
Investor's Business Daily
Tuesday’s attack on New York’s World Trade Center nearly drove a stake through the heart of Wall Street. But the market has recovered from past national crises. And it’s more than likely to bounce back from this disaster, too, veterans say.
“There will obviously be infrastructure problems, chaos and confusion, but I don’t expect financial disaster to accompany the national disaster,” said John Bollinger, president of Manhattan Beach, Calif.-based Bollinger Capital Management and a market historian. “In times of tragedy, people tend to come together and pull for the common good.”
Still, the near-term outlook looks bleak. The NYSE and the Nasdaq didn’t hold regular sessions Tuesday. But electronic communication networks, or ECNs, handled trades during the pre-market hours until 10:30 a.m. Eastern time, says Ed Wedbush, head of Los Angeles-based Wedbush Morgan Securities. And prices fell.
Index futures initially indicated a bullish opening. The pre-market bid on Sun Microsystems (SUNW), which closed Monday at 10.29, had jumped to 10.70. Once word got around about the disaster, market-makers filled orders at 10 and 10.20 a share, Wedbush said. Ericsson and other techs did the same.
It’s unclear when the market will reopen. When it does, stocks in industries spanning from transport and lodging to insurers and brokerages could face heavy selling. These companies must deal with lost sales and damaged infrastructure.
Whether we sell off or not doesn’t change the market’s overall complexion. We’re still entrenched in a long decline going back to March 2000.
Investor fear more than likely will rise. This may ultimately benefit the market. When pessimism hits a peak, prices tend to rise since few sellers remain. The put/call volume ratio rose Monday to 0.99, a hair shy of its August peak of 1.0. The percentage of bullish stock newsletter editors as of last week stood at 44.3%, still higher than the 30.9% ratio of bears. In the middle of September 1998, a month before the market bottomed, bears outnumbered bulls 47.5% to 36.2%.
National disasters in recent times failed to derail the market’s general trend. A truck bomb exploded outside the Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995, killing 168 men, women and children. But the market was already four months into a strong rally. That day, the Dow bounced back from an early sell-off and rose 0.7%.
The Nasdaq lost 1.1%, marking its third straight sell-off. But it, too, quickly recovered and went on to climb 31% the next five months.
A terrorist bombing at the World Trade Center on Feb. 26, 1993, killed six people. It had little impact on the major indexes. The Dow fell that day, then resumed its slow but steady rise through August 1995.
“We don’t have to speculate what the market will do,” said William O’Neil, IBD publisher. “We’ve got to remember America is a very strong country.”
Wedbush agrees. On Jan. 17, 1994, he was driving from San Diego when the Northridge earthquake flattened elevated highways and tore through homes in Los Angeles. Wedbush raced back to find his office without electricity. He used a backup phone system to keep in touch with Wall Street and with branch offices to keep the order flow going.
“I believe that people in this country aren’t going to allow terrorists, if they’re a source of this, to intimidate them to the point of closing things down and having a really negative impact on the economy,” he said.
Wedbush also recalled being on the phone to the floor of the Pacific Exchange when President Kennedy was assassinated on Friday, Nov. 22, 1963. “The market was closed 15 minutes after the news,” he said. “The next (trading) day it was closed as well. But right after that the market was open and went on to a really large bull market. The assassination of JFK didn’t really affect the economic outlook of the U.S. I see that as a follow-on to those kinds of situations.
“I don’t want to understate how profound this attack is, in terms of the number of people that have apparently died and all the things that go with it. People will feel very negative and think it’s going to drag out. But the American, as a person, responds rather quickly. I think we’ll bounce back very, very quickly.” |
