Interesting perspective on tomorrow's possible stock market action....From Atlanta Journal newspaper
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Will the bloodletting continue?
All it took to trip the Dow was Friday's bad news on consumer prices, which left investors with no place to turn.
By Robert Luke
And Russell Grantham
Atlanta Journal-Constitution Staff Writers
U.S. investors lost $2.1 trillion this week.
Almost half those losses came Friday, causing anxiety among investors wondering if the frantic selling on Wall Street would spill over into Monday.
Bank on it, many experts say.
The sell-off was sparked by concern that the biggest pickup in inflation in over five years would push interest rates significantly higher.
The Nasdaq composite index -- loaded with once high-flying technology stocks -- fell 355.49 points, or 9.7 percent, to 3321.29, its second-largest percentage loss and biggest point drop ever.
The Standard & Poor's 500-stock index lost 83.95 points, or 5.8 percent, to 1356.56, as 87 of its 88 industry groups declined.
The Dow Jones industrial average had its biggest point drop ever, tumbling 617.78, or 5.6 percent, to 10,305.77, with American Express leading all 30 stocks lower.
For the week, the Nasdaq lost 25.3 percent, while the Dow dropped 7.2 percent and the S&P 500 sank 10.5 percent. Since its March 10 record, the Nasdaq has retreated 34.2 percent.
U.S. investors lost $2.1 trillion this week, according to Wilshire Associates, which tracks more than 7,000 stocks of companies headquartered in the United States though its Wilshire 5000 index.
The Nasdaq composite index alone forfeited some $540 billion in market value Friday and an astounding $1.68 trillion for the week, according to Prudential Securities.
Will the blood-letting continue? Should bargain hunters rush to buy now as others are hurriedly selling?
Yes, and no.
Most market observers believe Friday's sell-off will spill over to Monday.
"Normally, if you have a really bad Friday, it carries over into Monday," said Phillip Larkins, market strategist at Legacy South, an Atlanta-based money management firm.
"A weekend of worrying doesn't lend itself to a vigorous uptick on Monday," he added.
Prudential Securities market strategist Larry Wachtel agrees.
"I think we're going to see a blue Monday," he said. "I think it's going to be tough."
Larkins frets that the waves of selling could undermine confidence in the financial markets.
"My concern is, the psychology of the market may be changing," he said. "There have been so many investors who have not been through a bad market."
Analyst Ricky T. Harrington of Wachovia Securities agrees. He thinks that many small investors now may be shifting money away from stocks into less volatile investments, such as bonds and certificates of deposit.
"I believe it's the beginning of the migration away from equities," Harrington said.
One reason is that the wild swings in the financial markets are likely to continue. Daniel Goldfarb, a portfolio manager at David L. Babson & Co. in Cambridge, Mass., explains:
"If rates rise more than expected in coming months, it "will be another kick in the pants for stocks. People were thinking maybe we were close to the end of rate increases."
There's no need to rush out and buy stocks now that they are down, said Bruce Bittles, a partner at J.C. Bradford & Co. in Nashville.
"I think you should wait," he said. "We're telling our clients that the best time [to buy stocks] will be in the second half of the year.
"Keep your powder dry," Bittles advised.
But Herb Williamson, a vice president at Atlanta-based Enterprise Capital Management, believes it's all right to bargain-hunt for the shares of companies with bright earnings prospects.
"You know there was a lot of air in the technology stocks," said Williamson, whose firm manages mutual funds with about $9 billion in assets. "This [sell-off] was a way to let some of it off."
But the shares of some solid "bricks-and-mortar" companies were unfairly beaten up as well, he said.
"When you're throwing out the baby with the bath water, you're throwing out a lot of good stocks with good, solid fundamentals and earnings growth," Williamson said.
Larkins of Legacy South sees a silver lining to the market's turmoil.
"This is a good and healthy thing because there are too many investors who have no appreciation of the risk factor in investing," he said. "It's not heathy to think you are entitled to returns of 25 to 30 percent a year in the stock market.
"Long-term, a little dose of reality -- a gut check -- will be good for the market," Larkins said.
Wachtel of Prudential Securities concurs. He said the market is trading on emotion now, and a scientific approach that stresses "support levels" is useless.
"The decline is in emotional proportion as the run-up has been," he said, noting that the tech-heavy Nasdaq gained 85 percent last year and was up an additional 25 percent since the beginning of this year to March 10, when the Nasdaq peaked.
"This is the correction that we needed," Wachtel said. "I grew up in an era when people were getting 10 percent to 15 percent [annual] returns. Now they're firing money managers if they don't get 100 percent. Something was out of kilter."
Even so, Wachtel and other seasoned market observers know that declines are part of the territory on Wall Street.
As stocks plunged Friday, Bear Stearns Cos. Chairman Alan "Ace" Greenberg took swift action to calm the troops on the trading floor:
He broke out a yo-yo.
Stepping from behind his desk on a raised dais of the firm's trading floor, he let the toy roll up and down from the string around his finger.
"Time to practice the yo-yo," he said as the Dow Jones industrial average dropped 300 points around noon, on its way to slide more than 700 at one point.
The 72-year-old head of the sixth-largest U.S. investment bank -- whose motto is "stocks fluctuate" -- was making a simple point that he's made before. "He wants people to feel there's nothing to worry about," said his secretary, Laura Schreiner.
Staff writer David McNaughton and news services contributed to this article.
stock market action..
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