Volatile third quarter for stocks ends on up note

Published: Wednesday, October 1, 2008 at 6:01 a.m.
Last Modified: Tuesday, September 30, 2008 at 10:52 p.m.

NEW YORK — Investors looking at their 401(k) statements for the quarter that ended Tuesday may be tempted to bail out of stocks entirely.

Who can blame them? With share prices down and daily triple-digit swings in the Dow Jones industrials almost the norm, most everyone would sleep better at night with a smaller stake in the stock market.

First, though, a reality check is in order: By historical standards, the third quarter actually wasn’t that bad and not even close to the worst ever. In fact, it’s not even the worst quarter of the year.

“Certainly it’s somewhat disconcerting. But when you’re in it for a long period of time, you don’t worry about it as much,” said John Doherty, a retired 54-year-old Chicago options trader. He’s plowed another $30,000 into stocks and professes not to be worried about what he sees as temporary swings in his investments.

The Dow Jones industrial average fell 4.4 percent in the third quarter, down 499.35 points, a smaller decline than the 7.6 percent and 7.4 percent drops in the first two quarters of the year. The Standard & Poor’s 500 index fell 9 percent in the quarter versus drops of 9.9 percent and 3.2 percent in the first and second quarters.

It was the Dow’s fourth straight quarter of losses, the longest losing streak since a five-quarter drop that ended in 1978.

The final trading days of the quarter show what many investors had to endure. The Dow lost 778 points in Monday’s sell-off after lawmakers couldn’t agree on a rescue package for the financial industry. Then it surged 485 points on Tuesday on optimism that the rescue package could be revived.

Financial advisers note that those who ditch stocks now are locking in their losses. History suggests those who try to time the market will fail and rob themselves of the chance to share in stocks’ inevitable recovery.

Over the past 30 years, the just-completed quarter ranks as the 10th worst percentage decline for the S&P 500. The worst was the fourth quarter of 1987, when Black Monday helped pull the S&P 500 down 23.2 percent for the three months.

Not all sectors fared as poorly as the overall market. Airline shares were among the best performers, with most major carriers showing double-digit percentage gains after crude oil fell from its mid-July peak of $147 a barrel. Oil settled just above $100 on Tuesday. American Airlines parent AMR Corp. saw its shares double in the quarter.

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