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Will stocks drop Monday?
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September 16, 2001: 7:00 a.m. ET
Whether it's selloff or stability, market's resumption laden with a message
By Staff Writer Jake Ulick
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NEW YORK (CNNfn) - When stock trading resumes Monday, some expect a plunge. Others forecast a rebound. But whatever happens, the end of the longest trading suspension since the Great Depression is heavy in symbolism, heavy with signs that financial markets were shaken but not broken.
Wall Street professionals, many still grieving the deaths of friends, family and colleagues involved in the World Trade Center attacks, must turn their attention back to matching buyers and sellers of stocks.
"Time to dig in and start to go," said Hugh Johnson, chief investment officer at First Albany.
Johnson said he won't focus on the open, when he expects a selloff. Instead, he'll watch whether investors buy stocks once they tumble in a bet that the deadly terrorist attack won't significantly threaten the economy and corporate profits.
"Just as the bond market and Europe has priced in what this tragedy means ... so too will the stock market," said Johnson. "The real question is what happens at 10:30 (a.m. ET)."
The institutional clients that First Albany manages money for have signaled they will come in because they see value in the market, Johnson said.
Still, plenty of fear surfaced last week. On Friday, European stocks fell, the dollar tumbled and oil soared. Money flooded into Treasury securities, the safest of securities, sending yields tumbling.
That action seemed to underscore worries about the attack's effect on the U.S economy. In one scenario, consumers and business executives, already cautious amid a slowing growth, postpone spending and travel, further hurting an already stagnant economy.
Last month's economic numbers, reflecting pre-attack conditions, did not look good. The nation's unemployment rate jumped to a four-year high of 4.9 percent, industrial production fell 0.8 percent, and the number of new claims for unemployment benefits jumped to 431,000 in the first week of September from a revised 410,000 the prior week.
Stocks were already suffering amid the worst year for profits in a decade. And Mickey Levy, chief economist at Banc of America Securities, said he expects further stock declines Monday, reflecting "the increased risk that is now perceived to surround future profit streams."
For bulls, the attack has raised expectations that the Federal Reserve will soon lower rates aggressively before their regular meeting, following seven rate cuts this year. Some see that cut coming before markets open Monday.
"As we work toward a reopening of the equity markets, we believe that a cut in rates is even more important than it was before," Bear Stearns economists Wayne Angell and John Ryding said in a note to clients.
Overseas, central bankers have agreed to pump money into their economies to keep buying and selling from seizing up.
On the corporate side, Cisco Systems (CSCO: Research, Estimates) last week said its board authorized a stock repurchase program of up to $3 billion over the next two years, a sign that companies with depressed stock prices see value in their shares.
Optimists see in the attack a catalyst for recovery. And some sectors are expected to do well this week. They include energy, defense, health care, construction and consumer stable stocks. But money may flee insurers, airlines and hotels.
Profit reports
A handful of companies, running the gamut of industries, report results for their August quarter. But the numbers take on less significance because they don't include information on the post-attack period that may prove crucial to where the market is heading.
The attack on the nation's financial capital focused attention on brokerages, two of which report results in the days ahead.
Profit at Morgan Stanley (MWD: Research, Estimates), one of the largest tenants in the World Trade Center, is expected to fall to 65 cents a share from $1.09 a share.
Bear Stearns (BSC: Research, Estimates) is expected to see its profit fall to 90 cents per share from $1.32 a share in the year-ago period.
The brokerage business has faced a slowdown in trading, underwriting and mergers and acquisitions fees. But the technology business is suffering from worse slump.
Consider 3Com (COMS: Research, Estimates), a maker of networking products. When the company posts results this week, analysts expected losses of 35 cents a share, much wider than the 12-cents-per-share loss in the year-ago period.
Profits at General Mills (GIS: Research, Estimates) are expect to rise to 59 cents a share, according to the Wall Street consensus estimate, from 55 cents in the year-ago period.
Food stocks like General Mills have held up well this year as money moves into stable stocks whose profits tend to hold up amid an economic slowdown.
Economic data also reflect the pre-attack period. Monday brings the July trade balance data. According to economists surveyed by Briefing.com, the deficit is expected to widen to $29.8 billion in from $29.4 billion in June.
The August Consumer Price Index comes Tuesday. Once again, inflation is expected to be contained, with a 0.2 percent rise forecast following July's 0.3 percent drop.
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Fireman near the site of the former World Trade Center catch their breath | |
On Thursday, housing starts in August are expected to fall to an annual rate of 1.63 million from 1.67 million the previous month.
Whatever happens to stocks this week, they are starting from already depressed levels. Last Monday, the Standard & Poor's 500 index closed down more than 17.2 percent on the year, while the Nasdaq is 31 percent lower in 2001. Blue chips have held up a little better. The Dow industrials are off 11 percent this year.
But there's one emotional wild card that may come in to play that has nothing to do with profits. Call it the patriotism effect.
"If the markets retreat, the terrorists have won," Joanne Rosen, a reader, wrote in an e-mail to CNNfn. "If the stock market surges, we will prove that we have not lost confidence in ourselves and in our future." 
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