Stock Market Will Correct Itself, Say Money Managers
Last week’s expected battering of Wall Street following the longest closure of markets since the Great Depression didn’t rattle most local investors, who refused to engage in panic selling.
“There’s a certain bit of stoicism on the part of not just investors but of people overall,” said Bud Leedom, a stock analyst with Wells Fargo Van Kasper on the day trading resumed. “They’re not going to let this influence them. They’re not going to show weakness. Sure, we’re down today and everybody knew (the market) was going down but was there panic? No, I don’t think there’s anybody doing that.”
Most local financial planners and portfolio managers notified their clients before the Sept. 17 reopening of a drop that could be steep, and that selling off at this point wasn’t advised.
“The main message investors have to get out of this is there is no way they can salvage things now. To sell today is really too late,” said Ken Frost of Wheeler/Frost Associates Inc. in San Diego, which manages about $75 million in primarily individual accounts.
Selling shares at this juncture as sumes prices will decline even more, and that they will be able to make an even more difficult call, getting back in before the upswing starts, Frost said.
“What it comes down to is making two correct decisions, which is impossible,” he said.
That a bounce-back from the downslide would occur was practically a certainty, say most portfolio managers, citing historical precedent.
Mary Katherine Dean, principal of Dean Consulting in Rancho Bernardo with some $80 million under management, said while there was no guarantee history would repeat, in past instances of a national calamity, the stock market eventually did rebound, and sometimes within a very short time.
“A lot of my clients are retired, and I’ve received some calls asking if they will be able to make it now,” Dean said. “I’m telling them even if they have huge losses they can still make it.”
Dean said the current decline could last several days or a few weeks, but unless investors planned to expire in the next five years, she advised staying put, meaning at least half their portfolio should be in equities.
She noted those who pulled out of stocks in the early 1970s because of a downturn of about 40 percent missed the upswing in the 1980s.
“You don’t know when the market is going to turn around and you want to be there when it does,” she said.
Some Stocks Suffer
At the close of trading Sept. 20, all stock indexes were in deep decline, with the key Dow Jones industrials recording a drop of 382 points, or 4 percent, bringing its losses from Sept. 17 to more than 1,100 points over the four days. That eclipsed the 821 points the Dow fell during mid-March.
The Nasdaq slid to 1,470, or nearly 4 percent, and the S & P; 500 Index was at 984, down 3 percent. Among San Diego stocks, some of the largest losers over the four days was Qualcomm Inc., down by more than 5 points to $45.50; Peregrine Systems, down by more than 5 points to $15.99; Invitrogen Corp., down more than 5 points to $63.13; and Applied Micro Circuits Corp., down more than 3 points to $9.
Sheryl Rowland of Rowland Dold & Associates, LLP in Mission Valley, echoed the reaction of most other financial managers who said their clients weren’t panicking.
“They know the markets have a cycle to them and long-term investors aren’t going to bail out at this time,” Rowland said. “Moving out of the market now and locking in these kinds of losses makes less sense now than when the market opened (on Sept. 17).”
Rowland said her main advice to clients was to be diversified so that they’ll be in position to ride out the storm and “take advantage of the rebound we believe is near.”
Over the next few days and weeks, Rowland and others expected the markets to be volatile, but also expected a certain degree of rallying.
“There will be panic sellers selling, but there will also be opportunistic buyers buying,” she said.
Layoffs Could Ripple Here
Along with the continuous barrage of unsettling news concerning the terrorist attacks of Sept. 11 and sending naval ships to the Middle East, Wall Street was also grappling with news of huge layoffs from major airlines and other corporate news associated with lower earnings and higher than anticipated losses.
Besides layoffs of more than 40,000 in the airlines industry, Boeing said it would cut about 30,000 jobs. The latter news may have grave impacts on Goodrich Aerostructures Group in Chula Vista, formerly called Rohr Inc. and now a division of Goodrich. The division, which employs about 2,500 locally, manufacturers plane engine cowlings called nacelles.
Despite all the turmoil and uncertainty, the prevailing reaction among the vast majority of investors was to hold steady and wait for a turnaround, said money managers.
“We’re going to get through this just as we did every other period of economic stress we’ve been through,” said Charles Foster of Blankenship & Foster in Del Mar, which manages a total portfolio of about $200 million.
“The economy is not destroyed,” Foster said. “As long as people don’t get out, they’ll be well off over the next two to three years, but over the next six to 12 months it’s going to be bumpy.”
