S & P lowers recommended stock allocation to 60% from 70%
Bear market has ravaged
even the 'pretty' stocks
By TOM WALKER
Atlanta Journal-Constitution Staff Writer
The stock market will be "shrouded in mist for weeks and months to come" as investors react to headlines about the war on terrorism.
That's the way market analyst Bernie Schaeffer of Schaeffer Research.com sized up the market on Friday at the end of one of the worst weeks in Wall Street history.
"One thing the market dislikes is uncertainty," said Schaeffer. "We are now faced with economic and military uncertainty" following the Sept. 11 terrorist attacks on New York and Washington.
His assessment came at the end of a week in which President Bush vowed before a joint session of Congress to vanquish terrorists responsible for the attacks.
Federal Reserve Chairman Alan Greenspan said this week that the attacks had "dealt a shock" to the economy.
Meanwhile, analysts at Standard & Poor's urged investors this week in a special report "to avoid panic," while also warning that "near term, the U.S. economy faces some rough sledding."
One of the major events of the past week, when trading was resumed after being closed for four days, was the sharp drop in the benchmark Dow Jones industrial average.
The index of 30 blue chip companies had been recording much smaller losses than the other major averages for most of the 18-month-long bear market.
But the Dow began posting bigger losses at the end of August. In the week just closed, the index plunged 1,369.70 points, or 14.3 percent -- its worst weekly percentage loss since 1933.
The sudden sell-off in the Dow stocks is particularly meaningful, according to Ralph Acampora, senior technical analyst with Prudential Securities.
Companies in the Dow are what Acampora called "pretty stocks" -- large, stable, well-managed blue chip companies with track records of growth and favorable earnings.
And, Acampora told clients on Friday, "the prettiest stocks go down last."
"In classic bear markets, we believe there are typically two major waves of selling. The first decline is typically dominated by massive selling in the popular speculative issues, and the second major sell-off is seen in the relative winners -- the prettiest stocks," said Acampora.
The strength of "old economy" blue chips had created a two-tiered market since early last year, Acampora noted, during which more speculative stocks suffered the most selling.
"Unfortunately," said Acampora, "it now appears that the winners will undergo an unwinding as the second leg of the bear unfolds."
Acampora attributed this turn of events to "a dramatic change in consumer confidence, which could lead to further market weakness."
In their special report, Standard & Poor's analysts said the only plus in recent months has been "the willingness of U.S. consumers to spend."
"That will change now," said the report. "Corporate earnings will continue to deteriorate. We expect the U.S. economy will slide into a classic recession, generally defined as two successive quarters of negative growth."
Standard & Poor's Investment Policy Committee lowered its recommended allocation of stocks to 60 percent of an investment portfolio from 70 percent, with 25 percent in bonds and 15 percent in cash.
Standard & Poor's analysts said the hardest hit industries in the near future are likely to be property-casualty insurers, which will pay out billions in damage claims; airlines and hotels, which will suffer lost business as travel activity slows; media companies, which will lose advertising revenue; and retailers, which will find few consumers in the mood to buy.
But the analysts said the markets should be higher a year from now, based on history.
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