Reuters Business Report
Wall St. Awaits Return of Small Investor
By Ross Finley
NEW YORK (Reuters) - Wall Street is pining for the return of Ma and Pa investor.
A pillar of support that sustained previous bull markets, and helped end downturns, small investors have yet to find reasons to
return to the market after the drubbings of the past two years.
"Everywhere I turn, small investors are scared and demoralized and are just so disheartened," said Hugh
Johnson, chief investment officer at First Albany Corp. "Every day there seems to be some news about some company that
didn't give us the straight scoop -- and I think that bothers them deeply."
Trading volume is still sluggish, and mutual funds that invest in stocks -- one of the key gauges of individual investor activity --
saw deposits drop 13 percent in May from the prior month, according to Lipper Inc.
Analysts say small investors remain wary over honesty in America's boardrooms following the spectacular collapse of Enron
Corp. last year.
Just in the past two weeks, former chief executives of two prominent U.S. companies, Tyco International (NYSE:TYC -
News) and ImClone Systems Inc. (NasdaqNM:IMCL - News), have been slapped with criminal charges. Even Martha
Stewart, American icon of domestic perfection, has become embroiled in allegations of insider trading.
Sporadic terrorism alerts and military tensions around the globe have also spooked many smaller investors out of adding risk to
their portfolios -- however rewarding that added risk might be over the long haul.
Until stock prices drop further to fully reflect heightened risk, equities will probably remain stuck in fear and uncertainty -- the
market's thickest quagmire, analysts said.
"Everybody's so down on the market that from a contrarian standpoint you've got to look for some relief. But imposing on that
is the geopolitical situation," said Larry Wachtel, market analyst at Prudential Securities.
"You can say, 'OK, domestically, things are getting overdone, I think I'll step up.' But then you say, 'Wait a minute, what about
the terrorism situation, what if there's another attack in Israel, what about Pakistan-India.' So that kind of precludes you from
doing the things you normally do," Wachtel said.
A deadly car bomb outside the U.S. consulate in Karachi took the floor out from under the stock market late last week, and
kept trading volumes razor-thin. News on Wednesday of Israeli tanks rolling into the West Bank city of Jenin after 19 people
were killed in a Palestinian suicide bomber blast on a Jerusalem bus Tuesday also weighed on the stock market.
RETAIL TRADING DOWN
Traders on Wall Street say that retail volumes are down, even if daily volumes on the New York Stock Exchange and the
Nasdaq have held up. Other professional investors like hedge funds are filling the gap.
As the hot summer approaches, always a slow time for the market, there signs that investors' confidence has already wilted.
Charles Schwab Corp. (NYSE:SCH - News), a leading online and discount brokerage, last week said it will miss its quarterly
profit estimates because investors continue to shun stocks. Soon after, Ameritrade Holding Corp. (NasdaqNM:AMTD -
News) warned on earnings, citing the same reason for a decline in trading volumes.
Online brokerage TD Waterhouse, a subsidiary of Canada's Toronto-Dominion Bank (NYSE:TD - News), said last week that
total daily trades during May averaged 93,300, down 6 percent from April figures and off 21 percent from May 2001.
Morgan Stanley said on Wednesday net revenues from its brokerage unit dropped 9 percent. Wall Street traders said that
program trading -- short-term deals done by big institutions -- makes up 40 percent of the market's volume now compared
with just 25 percent last year.
SERIOUS DISILLUSIONMENT
Disillusionment with the U.S. market stretches abroad as well. A Merrill Lynch survey of global equity fund managers citing
"serious disillusionment with Corporate America" this week reported a majority think that U.S. stocks are the most
highly-priced in the world and plan to own fewer of them over the next year.
And while many agree there are bargains out there -- for example, some professional value investors have been accumulating
Tyco shares -- few individuals are willing to buy.
Over the last 20 weeks, the Nasdaq Composite Index -- packed with stocks that were once the darlings of the small investor
-- has eked out gains in only four. And last week was the index's fourth losing week in a row, along with the Dow Jones
industrials and the Standard & Poor's 500.
"I think it's just a slow bleed until people decide that they can trust Corporate America again," said Jack Francis, senior
Nasdaq trader at UBS Warburg in Stamford, Connecticut. "When they can trust Corporate America again and its watchdogs
they'll come back in and invest in it." |
