Sept. 3, 2002, 10:51PM
Grim uncertainty throttles markets
Dow plunges 355 to begin month historically gloomy
By SHANNON BUGGS and NELSON ANTOSH
Copyright 2002 Houston Chronicle
Stocks started September in the red, and that is likely to set the tone for a grim month.
Tuesday's drop reflected the mix of worries that have burdened the market of late -- from the fear of a double-dip recession to the possibility of war with Iraq. But there are historical precedents that suggest September is the time of year when markets fall.
"It always seems that when people come back from vacation, their first thought is to sell," said David Wyss, chief economist at Standard & Poor's in New York. "September is the only month of the year that the average is down."
Adding to the grim history is the fact that some of the market's darkest days were in October. Of the 15 biggest market declines, 11 occurred between the middle of September and the middle of October, Wyss said.
On Tuesday, the Dow Jones industrial average closed down 355.45 at 8,308.05, while the Nasdaq shed 51.01 to close at 1,263.84.
MARKET FACTS
September is the worst month for blue chips. Since 1950, the Dow has fallen a cumulative 43.7 percentage points in September, according to the Stock Trader's Almanac.
The broad Standard & Poor's 500 index slumped 4.15 percent, the biggest percentage fall since a 4.92 percent drop on Sept. 17, 2001.
Last week, the three major U.S. indexes fell, ending five straight weeks of gains.
The main Japanese stock index dropped 3.2 percent on Tuesday to its lowest level since Nov. 7, 1983.
There was a broad decline in stocks Tuesday, with four stocks falling for every one that rose on the New York Stock Exchange.
Consolidated volume remained light at 1.61 billion shares, but well above the 1.16 billion shares traded Friday.
Source: Chronicle wires
The broader Standard & Poor's 500 Index dropped 38.18 to 878.02. The S&P fell 4.15 percent for the day -- the worst one-day percentage drop for the benchmark since a few days after Sept. 11.
Energy stocks also headed south, reflecting the big drop in oil prices and the many unknowns facing the business.
Investors in the oil-field service industry don't have a lot to look forward to during September because the outlook is cloudy for the companies that drill the holes, fracture the rock and perform myriad services, says oil-field analyst Jim Wicklund of Banc of America Securities.
He predicts that oil companies will decide that it is better to wait a couple of months before drilling a bunch of new wells.
At the moment, they don't know if or when the recession will end, what OPEC will do or if the United States will bomb Iraq.
"How do I resolve this uncertainty? I sit on my hands," said Wicklund. On Tuesday he lowered his ratings on the entire group.
The same questions may play out for business leaders and consumers throughout the country.
Tuesday's economic report on manufacturing showed the recovery is alive but hardly inspiring. While the measuring of manufacturing activity from the Institute of Supply Management showed the seventh straight month of growth, it was lower than expected.
Analysts are looking to Friday's release of unemployment figures to see if the corporate accounting scandals have short-circuited the recovery.
If unemployment is higher than predicted, companies are expected to scale back their earnings projections because they believe consumers will trim their spending.
September also may suffer because it's the time when companies with bad news warn the markets before earnings roll out in October.
"This September, we expect to be fairly rough in terms of pre-announcements revising earnings down," said Joe Cooper, a researcher for First Call/Thomson Financial.
It will also test whether consumer spending can keep the economy growing.
"A lot of retailers will be reporting their same-store sales data soon, and back-to-school shopping wasn't what it was supposed to have been," said Cooper.
Looking ahead, consumers will soon be coping with the first anniversary of the Sept. 11 attacks. Many retail observers fear the constant commemorations will keep people at home.
Investors are not going to find any escape by looking overseas. Wall Street followed declines in Europe and Japan. The best known Japanese index dropped 3.2 percent to the lowest level since 1983, raising fears of another recession there.
The global market malaise combined with domestic investor apathy has experts anticipating a further drop in U.S. markets.
"The big problem is going to be corporate earnings," he said. "We're not terribly optimistic about the numbers we're going to be seeing."
And once the reports are released, investors will have to decide if they are getting a truthful assessment of the company's financial state.
"The market just doesn't know who to trust anymore," Wyss said. "There was a time when the bottom line was the bottom line. People just don't know anymore whether to trust the annual report or the quarterly report."
It's that fear of falsehoods that has driven so many investors into the bond market. Bond prices soared Tuesday as investors bailed out of the stock market to seek safer investments, and the yield on the benchmark 10-year Treasury note fell to its lowest point in nearly 40 years.
The price of the 10-year note rose 1 points, or $13.75 per $1,000 in face value. Its yield, which moves in the opposite direction, fell to 3.97 percent, from 4.13 percent Friday. The last time it was that low was May 31, 1963, according to the Bond Market Association, an industry group.
Declining issues outnumbered advancers more than 4 to 1 on the New York Stock Exchange. Consolidated volume remained light at 1.61 billion shares, but was higher than the 1.16 billion traded Friday before the holiday weekend.
The Russell 2000 index, which tracks smaller company stocks, fell 11.83, or 3 percent, to 379.13.
The dollar skidded across the board Tuesday, depressed by sliding U.S. equities and further signs of tepid growth.
All of those factors are likely to drive investors to sell. September marks the time when many dump investment mistakes.
"A lot of this can be attributed to vacation syndrome, but you also have to add this is when December starts to loom large and people use the fall to harvest losses before the end of the year," Wyss said. |
