Markets sour in September
Published: Tuesday, October 1, 2002 at 6:01 a.m.
Last Modified: Monday, September 30, 2002 at 11:46 p.m.
If you thought your last mutual fund statement was ugly, wait until you see this quarter's report.
The stock market drew the curtain on one of its worst quarters ever Monday, with the Dow Jones industrial average and the Standard & Poor's 500 Index registering their biggest percentage losses over a three-month period since 1987.
The Dow Jones industrial average dropped more than 240 points in early trading Monday, which was basically a continuation of Friday's near 300-point decline. But then the index of 30-blue chip stocks clawed its way back almost into positive terrain before falling back again in the last hour.
The late rally was perhaps of little solace to long-suffering investors, who slogged through the worst September since the Great Depression.
"Investors are in despair," said William Barker, investment strategist at RBC Dain Rauscher in Dallas. "There is absolutely no catalyst for anyone to run out and buy stocks. Gloom is everywhere."
For the day, the Dow dropped 109.52 points, or 1.4 percent, to close at 7,591.93. For the quarter, the Dow has declined 17.8 percent. The much broader Standard & Poor's 500 index dropped 12.09 points Monday, or 1.5 percent, to close at 815.29. The S&P has lost 17.6 percent for the quarter.
The Nasdaq composite index lost 27.09 points, or 2.3 percent, to close at 1172.08, leaving it down 19.9 percent for the quarter.
During the past 30 months of this bear market, the Dow has lost about a third of its value, the S&P about half and the Nasdaq three-fourths. In September alone, the Dow shed 12.4 percent, second only to the 12.9 percent loss in September 1937.
Monday's selling pressure came from the usual suspects - disappointing earnings news from a major company and weak economic data. Wal-Mart Stores Inc. cuts its forecast for September same-store sales from about 5 percent to 3 percent. Wal-Mart shares closed down $2 to $49.24.
The Chicago Purchasing Managers Index came in at a disappointing 48.1. A reading below 50 represents contraction in this sector. Also, the Commerce Department reported that consumers increased their spending in August by only 0.3 percent, falling short of analysts' expectations for a 0.5 percent pickup. News that incomes rose by 0.4 percent failed to ease investors' disappointment about spending.
"We need some good news on some front to turn this thing around," Barker said. "But it's not coming from earnings; it is not coming from Iraq; and it's not coming on the corporate spending front."
The earnings issue is particularly disconcerting. Earnings growth for companies in the S&P 500 is expected to be about 8 percent for the third quarter, according to Thomson First Call. And while that doesn't look too shabby at first glance, most analysts were expecting double-digit earnings growth this far into the economic recovery.
Hugh Johnson, market analyst at First Albany Corp., said while economists are predicting continued economic growth for the remainder of this year and into next, investors apparently aren't buying it.
"Investors may see that the economy is improving right now, but they don't believe it will last, and we could get a double-dip recession," Johnson said.
In other words, investors are afraid the stock market has not hit bottom yet. Many market analysts were hopeful that the bottom arrived with the panic selling of July 23 when the Dow dropped to 7,702. But both the Dow and Nasdaq have since breached those lows and the S&P is within a whisper of breaking through its low of 797 hit on that day.
"Investors are waiting for a bottom," said Richard Cripps, chief market strategist at Legg Mason Inc. "They want to have some confidence that they won't lose more money."
The Dallas Morning News and Newsday contributed to this report.
One of the classic signs that a bear market may be ending is a series of days of panic selling.
Market pros watch for huge market downturns in which 90 percent of the share volume on the New York Stock Exchange is down and only 10 percent is up.
The first such day occurred on Sept. 3 with the Dow's 355-point loss. And analysts believe others could soon follow.
"I think since Sept. 3 we are in the panic stage," said Paul Desmond, president of Lowry's Reports Inc., a market research firm in North Palm Beach, Fla. "These heavy downside days could occur now at any time. It's not going to be rational People are getting scared."
The 1973-74 bear market, one of the worst in history, ended after 14 such days.
These 90 percent down days are often followed by short snap-backs, which generally fizzle. But investors will know the bottom is at hand when this series of down days is following by one big 90 percent up day, Desmond said.
Tim Smalls, senior stock trader at SG Cowen in New York, said the minute the Dow broke through the July intraday low early Monday, it dropped off another 100 points.
"For every new low that is reached, the market is going to try and find another new low and then recover and settle back at a higher level," Smalls said.
He believes the S&P will finally have some support at about 800. But right now there is no one sector that can lead the market higher.
"There is no leadership in the markets right now, no one sector that stands out," Smalls said.
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