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A grim week ends
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September 21, 2001: 5:54 p.m. ET
Shrouded in uncertainty, U.S. stock indexes post historic weekly losses
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NEW YORK (CNNfn) - There was almost nothing good about this week for U.S. stocks, aside from the fact that they even traded at all.
The Dow Jones industrial average suffered its worst week since the Great Depression and its fourth-worst week of all time, dropping a record 1,369.70 points, or 14.26 percent, to finish at 8,235.81. The S&P 500 narrowly avoided its worst week ever, falling 126.77 points, or 11.6 percent, to finish at 965.80. The Nasdaq had its third-worst week ever, falling 272.11 points, or 16.1 percent, to end the week at 1,423.19.
All three indexes are at their lowest levels since the fall of 1998.
Traders returned Monday after a four-day shutdown caused by the terror attacks on Sept. 11 that destroyed the World Trade Center, damaged the Pentagon, killed thousands of people and damaged the infrastructure of Wall Street.
The heroic efforts of the New York Stock Exchange, Nasdaq and American Stock Exchange enabled markets to open and operate smoothly less than a week after the attacks. But the wreckage of the World Trade Center, just blocks away, made their triumph bittersweet.
Concerns about the health of the U.S. and global economies in the wake of the attacks fueled a sell-off that only made matters worse. On Monday, the Dow fell 684.81 points, its worst point decline ever. And that was just the beginning.
"It's been horribly grim this week," said Al Goldman, director of technical market analysis at A.G. Edwards. "There's a high level of gloom and doom in the market and a low level of optimism."
But there's good news, too.
"These are the personalities of a market getting in the areas of a bottom," Goldman said.
Uncertainty is the enemy
The problem, however, is finding that bottom. Stock markets hate uncertainty, and there's a lot of uncertainty about the new war on terrorism declared by President Bush in the wake of the attacks. No one yet knows who all the opponents are or what the scale of the war will be.
"You have the palpable fear by investors that we're going to end up on a war footing with a dramatic action in the very near future," Chris Wolfe, equity market strategist at J.P. Morgan Private Bank, told CNNfn's Market Call program.
As a result, the best-performing sectors of the week were defense and precious metals stocks, which are traditional safe havens for money in times of uncertainty. Commercial security stocks also did well, as investors expected businesses to spend more to protect themselves.
Among the worst-performing sectors were airlines and leisure services. Airlines were especially hard hit by an unprecedented shutdown in the wake of the attacks that turned hijacked passenger airliners into weapons. Consumers' fears about traveling after the attacks led to cancellation of travel plans, which also hurt the travel and lodging sectors.
Another source of uncertainty is fear about the state of the economy. Many economists now expect a recession this year, as consumer confidence sags under the weight of the attacks and hundreds of thousands of job cuts made during a year-long economic slowdown. How long and deep that recession will be is now the question.
"The stock market will remain depressed until layoffs stabilize and the resolution of the war on terrorism becomes clearer," said Sung Won Sohn, chief economist at Wells Fargo & Co.
The thousands of job cuts announced by airlines this week, combined with those already cut during a year-long economic slowdown, won't do much for consumer confidence. Like the stock markets, spending could also be hurt by uncertainty about the method and success of a U.S. retaliation for the attacks.
But the sharper the downturn in the economy and stocks, the quicker a recovery can take place, according to many analysts. Economists expect eight interest-rate cuts by the Federal Reserve, combined with billions of dollars in expected fiscal stimuli by the Congress and President Bush, to provide a boost to the economy by 2002. Stock market rallies usually precede such economic recoveries.
"Historically, economic and political crises have been buying opportunities," Sohn said. "Looking at 17 crises, ranging from President Wilson's nervous breakdown to the Gulf War, the stock market setback generally has been a short-term matter lasting no more than a few months." 
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