Facing October,,Commentary: Could it really get worse?
marketwatch.com
By David Callaway, CBS.MarketWatch.com
Last Update: 12:10 AM ET Sept. 27, 2001
SAN FRANCISCO (CBS.MW) - Given the horror of the terrorist attacks, the plunge in our already struggling economy and the worst week for the stock market in almost 70 years, it's heartening to think that with the passing of September the worst is behind us.
Until you realize October comes next.
The month that gave us the stock market crashes of 1929 and 1987, along with several other memorable market plunges, begins next week with investors staring at the worst third quarter earnings period in a decade, a litany of new profit warnings and mass layoffs from companies whose businesses were broadsided by the attacks.
On top of that, the mutual fund industry heads into the final month of its fiscal year - when fund managers typically sell to get rid of their dogs and spruce up their portfolios - with performance numbers that stagger the imagination.
Of almost 4,000 equity funds tracked by fund researcher Lipper, only 194 are in positive territory year to date, according to our third quarter fund report, which will be published this weekend.
Of the losing funds, over 3,300 are down more than 10 percent, 2,400 of them are down more than 20 percent, and 1,100 are down more than 30 percent.
Does this sound like the right time to buy?
No. But it's a bad time to sell, too.
When markets turn, they turn quickly. Yes, it will be months or even a couple of years before the economy can rebound to a point where we think it's strong again. And investors who are waiting to buy are wise to wait until they see signs of a solid rally.
Those who sell now, however, or panic as the market continues to slide, risk missing out on the rebound, which could easily take us back to pre-Sept. 11 levels in a very short timeframe.
In April, after the Dow Jones average ($INDU: news, chart, profile) had hit a low of 9,100 and the Nasdaq ($COMPQ: news, chart, profile) about 1,600, I called the bottom of this bear market.
Investor sentiment was about as low as it could go, I figured, and the series of Fed rate cuts that began in January - including two surprise cuts - were about to kick in. I was wrong.
Even after covering the 1987 stock market crash and the dismal recession of the early 1990s, I did not expect the level of depression among employees and investors could ever sink any lower. But it did, all summer long, layoff by painful layoff.
Then the terrorists hit, and we all learned that there are deeper fears out there, even bleaker outlooks to be considered. A perfect storm of political, economic and market uncertainties came together to hammer the world's stock markets last week.
Without the attacks, I don't think we would have come down as low as we have, with the Dow almost hitting 8,000 last week and the Nasdaq falling below 1,400.
But with them, the game has changed. Untold amounts of business have been lost since the attacks and the economic impact is only starting to be felt.
We are in the eye of the storm right now, with one more round of panic selling to go -- the traditional October fright. Don't be fooled by the latest declines. Given the financial impact of the last two weeks, stocks could go far lower.
But unlike the water torture of the last 18 months, this time the declines will be quick. So will the market recovery.
It will start with a one-or-two day rally, but will really gain steam after about a week, when the colossal amount of money lined up against this market through short-selling hedge funds starts to get squeezed. By the time small investors realize what's happening, the bottom will be long gone.
October gets a bad rap. It may be the month of great stock market crashes, but it's also the month that has stopped several bear markets in their tracks, according to the Stock Trader's Almanac. Nine bear markets snuffed out since World War II to be exact, including those in the years 1987, 1990 and 1998.
A catalyst is needed, and I'm afraid it will be a military one. The Bush administration has done a tremendous job of holding itself back while it prepares for war, keeping a cool head in the face of taunts from Osama bin Laden, the Taliban and its supporters in Kabul.
But even though this will be an indefinite battle fought on many fronts, there will be an initial strike, and it will be fierce.
And then the tide will turn.
David Callaway is executive editor of CBS.MarketWatch.com. |
