010912_Dow_suffers_worst_week_since_1933_economic

September 22, 2001

Dow suffers worst week since 1933
Nasdaq slammed even harder, taking NW companies with it

By Drew DeSilver
Seattle Times Business reporter

Stocks finished their worst week since the Great Depression yesterday, wiping out years of gains. Market watchers saw little prospect that things would improve in the near term.

"Somewhere soon we're going to be close to the bottom, but honestly I don't know where that is," said Les Childress of Bainbridge Island-based Childress Investment Research. "It doesn't pay to be buying this week, and I'm not advising people to."

The 30-stock Dow Jones Industrial average lost 140.4 points yesterday to close at 8,235.81. The blue-chip index has fallen 14.26 percent since trading on U.S. markets resumed Monday, its biggest one-week drop since July 1933. The Dow is now lower than it's been in nearly three years.

The news was even worse for the once-high-flying Nasdaq, where many Northwest companies and local investors have sought their fortunes in recent years. The Nasdaq Composite index fell 16.06 percent this week, its third-biggest drop ever; more than four years of gains have evaporated, and the index has fallen 71.8 percent from its all-time high in March 2000.

The decline was overpowering in its breadth. Of the 196 Northwest stocks traded on major exchanges, 166 ended the week lower than they began it; only 25 stocks gained ground.

Declining stocks ran the gamut from solid, profitable companies such as Starbucks (down 13.2 percent) and Microsoft (down 13.7 percent) to struggling young tech companies like Avenue A (down 40.8 percent) and CenterSpan Communications - the Northwest's worst performer, down 46.4 percent for the week.

Aviation and travel stocks were among the hardest hit. Alaska Airlines lost 40.4 percent of its value this week; online travel agency Expedia fell 40 percent. Boeing, which announced this week it would cut 20,000 to 30,000 jobs, edged up 34 cents yesterday but was still down 30.7 percent on the week.

Among the week's few Northwest winners: Washington Mutual, AT&TWireless and Hollywood Entertainment.

Analysts cited a host of uncertainties that are causing people to flee the markets: the prospect of war, fear of more terrorist attacks, and concerns that the U.S. economy is finally, without doubt, in a recession.

"It's the fear factor," said Don Gher, chief investment officer of Coldstream Capital Management in Bellevue. "Fear and uncertainty are two of the worst things the market can encounter."

Most observers expected stocks to fall sharply last Monday, the first day of trading after the Sept. 11 terrorist attacks on the Pentagon and World Trade Center, and they were not disappointed. But the markets had appeared to stabilize on Tuesday.

Then major companies like Boeing, United Airlines and Honeywell began announcing massive layoffs and the prospect of a recession turned into near-certainty. The U.S. economy had been skirting the hard edge of recession even before the attacks, and markets had been under pressure for months.

And consumer spending, which accounts for two-thirds of all economic activity, is directly related to consumer confidence, which has been seriously rattled by the terror attacks and the United States' preparation for war.

"Let's face it - consumer confidence is dead, and that was the only thing that was holding up this economy prior to Sept. 11," Childress said.

After Monday's sharp declines, many investors received margin calls - demands by their brokers to put up more cash for stocks they had bought on credit. That forced more selling later in the week, analysts said.

Yesterday was also a "triple-witching" day, when options, index options and futures contracts expire simultaneously. The massive trading that often accompanies triple-witching days can make even strong markets queasily volatile.

Much of the selling appears to be by institutions and professional traders, rather than individual investors. Don Cassidy, a senior research analyst with Lipper & Co., said that so far there's been little evidence of individuals moving large sums of money out of stock funds, though there's not much money going into those funds either.

"People are still shell-shocked, so they're not doing anything right now," Cassidy said. "Nobody wants to take a loss. But when people finally can't stand it any more, you'll see some capitulation. That's usually the sign of a bottom, and we're pretty close."

Historically, stock-market dives set off by crises - from President Wilson's incapacitating nervous breakdown in 1919 to Iraq's 1990 invasion of Kuwait - have lasted no more than a few months, said Sung Won Sohn, chief economist for Wells Fargo.

"Investors hate uncertainties," Sohn said. "The stock market will remain depressed until layoffs stabilize and the resolution of the war on terrorism becomes clearer."

When that happens, the first stocks to benefit likely will be those of large, established companies with solid profits - what analysts like to call "a flight to quality."

"Once people start paying attention to fundamentals again, I think they're going to be able to put together a nice shopping list of stocks that, two years from now, people will say `Why didn't I buy then?' " Gher said.

But, he added, "Does that mean those stocks are going to be good buys for the next two days, two weeks or two months? Not necessarily. But that's investing."

Drew DeSilver can be reached at 206-464-3145 or at ddesilver@seattletimes.com.