U.S. Stocks May Fall Monday, Led by Airlines (Update3)
By Danielle Sessa
New York, Sept. 15 (Bloomberg) -- U.S. stock indexes may plunge as much as 10 percent when trading opens Monday six days after terrorists destroyed the World Trade Center, many investors said.
Airlines such as AMR Corp. and UAL Corp., which account for one-fifth of the Amex Airline Index, may lose more than half their value, said Credit Suisse First Boston analyst James Higgins. Revenue will fall as passengers shun flying and costs will rise to pay for heightened security, he said. Insurers such as American International Group Inc. may decline because claims stemming from the attacks will curb earnings.
Defense contractors, including Lockheed Martin Corp. and Raytheon Co., may gain. The U.S. government said it is allocating $20 billion to combat terrorism. Drugmakers like Pfizer Corp. may gain because their earnings aren't dependent on the economy.
``We are looking at 5 to 10 percent down'' at the opening, said Rafael Tamargo, director of equity research at Wilmington Trust Co., which manages $25 billion. He cited declines this week in European and Asian markets as a yardstick.
The scheduled resumption of trading at 9:30 a.m. on Monday will mark the end of the longest break since President Franklin D. Roosevelt declared a `` bank holiday'' in 1933.
SEC
The Securities and Exchange Commission adopted temporary rules that seek to keep stocks from plummeting when U.S. markets open. The five-day emergency rules let public companies repurchase stock without following limits on how many shares they can buy or restrictions forbidding buybacks at the beginning or end of a trading day.
The SEC, which polices U.S. stock and bond markets, for the first time used congressionally granted emergency authority to temporarily change its normal rules to respond to a crisis.
Some analysts expect stocks to recoup losses within hours. Stocks may not plunge as much as they might had markets opened Tuesday amid panicky selling by investors, said Ted Bridges, who helps manage $1.1 billion at Bridges Investment Counsel in Omaha, Nebraska.
The decline in U.S. indexes may be similar to the drop in European stocks since the terrorist attacks, investors said. The Dow Jones Stoxx 50 Index of European stocks has lost 8.4 percent in the past four days, while the U.K. benchmark FT-SE 100 Index and German DAX lost 5.5 percent and 12 percent, respectively.
For the week just ended, the Nikkei 225 stock average fell 507.90, or 4.8 percent, to 10,008.89, rounding off an 18 percent drop in the past six weeks.
Tamargo began huddling five hours after the attack with 13 analysts and money managers at his firm's offices in Wilmington, Delaware.
`Only Money'
After four days of meetings and conference calls, breaking only for lunch and television updates about the terrorism, the group created a list of 200 stocks and the prices at which they would be bought or sold.
Tamargo said they would sell Southwest Airlines Co. if the stock dropped to $15. The airline industry faces costs of as much as $10 billion because of lost business and an expected decline in demand for air travel, an industry group said.
The firm would buy more shares of American International Group Inc. if it fell under $60. While insurance stocks may fall because of their exposure to buildings and companies damaged in the attacks, Tamargo said the world's largest insurer is a ``good long-term holding.''
Still, work was difficult amid the death and destruction in New York and Washington. ``On Tuesday when we got together I didn't want to talk about stocks,'' Tamargo said. ``At the end of the day it's only money. You have to do it, but your heart is not in it.''
Expected Declines
The Standard & Poor's 500 Index lost 17 percent this year, the Nasdaq Composite Index is down 31 percent and the Dow has dropped 11 percent. They were slumping before the attacks on concern a recession would push corporate profits lower.
The terrorism has sparked concern consumers will lose confidence in the economy and pull back on spending, leading to the first recession in a decade.
``I think things will seem unsettled for a week or so and then the focus will return to earnings,'' said Allan Meyers, manager of the $600 million Kent Growth & Income Fund.
The third quarter ends in two weeks, and corporate profits are expected to be hurt by fallout from the attacks.
U.S. companies' fourth-quarter earnings may decline as much as 15 percent, said Chuck Hill, research director at Thomson Financial/First Call. Before Tuesday, analysts had forecast a 2.7 percent drop in profits for the quarter and First Call had expected a decline of at least 5 percent.
History's Guide
Shares of drugmakers such as Pfizer and Merck & Co. will likely rise as investors flock to companies with earnings that aren't dependent on the economy.
If history is a guide, declines in coming weeks may be limited. The Dow Jones Industrial Average dropped 2.9 percent on the first trading day after the Japanese bombed Pearl Harbor in December 1941. The index was down just 0.9 percent a month later.
``Historical studies suggest the market goes down, then bounces back after an event like this,'' said Edgar Peters, chief investment officer of Panagora Asset Management, which oversees $1.5 billion. ``But this time the market never opened, so the usual overreaction didn't happen'' in the U.S., he said.
Peters said he plans to sell airline and insurance stocks and buy shares of defense contractors. He wouldn't specify which ones. Peters, who has 77 percent of his Preferred Asset Allocation Fund in stocks, said he plans to keep that weighting.
Stocks took longer to recover after Iraq invaded Kuwait in 1990 than after Pearl Harbor. The Dow lost 1.9 percent the day following the invasion, declined 8.7 percent in the month after the attack and had only pared its loss to 4.7 percent six months later. |
