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Wall Street Braces for Continuation of Death Spiral
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A 390-point drop in the Dow Jones industrial average Friday, July 19, sent the index careening to its lowest level in four years
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NEW
YORK, July 22 (IslamOnline & News Agencies) – After the
announcement of communications giant WorldCom’s bankruptcy, Wall
Street braced Monday, July 22, for what experts expect will be a
continuation of the downward spiral that has seen stocks lose a fifth
of their value since the start of the year.
A
390-point drop in the Dow Jones industrial average Friday, July 19,
sent the index careening to its lowest level in four years, creating
what some analysts have deemed the worst bear market since World War
II.
Experts
and officials Sunday, July 21, stepped up their calls for investors to
not succumb to panic selling, although they could not be sanguine
about the direction of shares in the short run.
“Mondays
following Friday declines have always been difficult, and I suspect
tomorrow will be no different,” Richard Grasso, the chairman of the
New York Stock Exchange, said on NBC’s Meet the Press Sunday
morning.
“Please
be patient. Please don’t do something that emotionally feels good
but, in the long term, will be a mistake,” Grasso pleaded.
He
attempted to highlight reasons for optimism amid the gloom left after
a black week which saw two major U.S. indexes hit five-year lows.
“Our
economy is strong. We’ve got a good bipartisan platform of reform
designed to rout out bad people and bad practices. American investors,
over the course of history, have been well rewarded. I think they’re
going to continue to be,” Grasso added.
The
Dow Jones industrial average, the principal Wall Street indicator,
dipped below 8,000 Friday before rallying slightly to close at
8,019.26 - a crash of 665.27 points, or 7.6 percent for the week to
close below its post-September 11 low.
The
Dow broke a seven-session losing streak Wednesday with a modest gain,
only to go into another free fall Thursday and Friday amid fears of
more corporate scandals.
Since
the start of the year the Dow has lost some 20 percent of its value,
dropping 14.5 percent in the past two weeks alone.
The
Standard and Poor’s 500, a broader measure of economic health,
shared in the pain, down 73.64 points or 7.99 percent on the week
Friday to 847.75 and hitting lows not seen since 1997.
The
tech-heavy Nasdaq also hit a five-year low but held up slightly better
with a loss of 54.35 points, or 3.96 percent, to 1,319.15.
Analysts
said the slump was mainly psychological, with many investors
succumbing to jitters after losing confidence following a string of
accounting scandals - despite a strengthening economy.
Some
analysts said that the end of the sell off could come soon -- or may
be weeks away.
“A
climactic bottom could occur at any time during the next 12 weeks,”
said David Kotok, chief investment officer at Cumberland Advisors, a
unit of BankAtlantic, adding that he believes the Dow could drop
another 600 or 700 points before recovering.
But
the pain will not go on indefinitely, he said. “By Halloween,
(October 31) we expect the market to be headed up, not down,” Kotok
said.
Kotok
pointed out that stock market mutual funds have seen 45 billion in
withdrawals during the last eight weeks, while investors have poured
billions into municipal bonds, considered a safe haven in turbulent
times.
“The
behavior of both fund sectors is clearly and symptomatically one of
panic about stocks,” Kotok said.
U.S.
President George W. Bush insisted Saturday on the need to restore
investor confidence, and called on Congress to pass a tough corporate
accounting reform bill before its August recess.
Allen
Sinai, Chief Global Economist at Decision Economics, told CBS
television “we still have significant downside risk to our equity
markets, even from these levels, I’m sorry to report another eight
or 10 percent possibly down before we could bottom out and then move
up.”
Analyst
Abby Joseph Cohen of Goldman Sachs said she believed the market was at
or near bottom.
“A
good deal (of the risk) is priced into the market and over the next
period of time, I think the direction for stock prices is higher, not
lower,” she told CBS.
“The
pendulum has swung too far in the (down) direction. That doesn’t
mean it can’t go a little further, but over a long period of time, I
think stock prices are moving higher, not lower.”
U.S.
House of Representatives Majority Leader Dick Armey, an economist by
trade, conceded on NBC Sunday: “We are nervous on behalf of the
economy.”
But
he insisted: “Buy low and sell dear ... There’s nowhere for the
market to go but up. This is the time to get in there and buy.”
Other
analysts inclined to look for a silver lining amid the gloom pointed
out that the stock market collapse probably augurs well for interest
rates in the short run, giving the Federal Reserve leeway to let the
economy recover.
“The
lack of inflationary pressures means the Federal Reserve will be able
to leave short-term interest rates unchanged until the recovery gains
a bit more momentum,” said Mark Vitner, economist for the First
Union/Wachovia banking organization.
“That
means the first rate hike may not come until sometime in early
2003,” Vitner said.
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