- The Washington Times - Tuesday, September 18, 2001

Stocks plummeted yesterday in the first day of trading since the terrorist attacks on Wall Street, with the Dow Jones Industrial Average posting its worst drop in history of 684 points.
After an unprecedented four-day trading interruption prompted by the attacks Sept. 11, a record 2.3 billion shares changed hands on the New York Stock Exchange, demonstrating that the financial system was able to overcome the major obstacles presented by downed computer and electrical systems and the losses of records and personnel caused by the collapse of the nearby World Trade Center.
Despite the Dow's record drop, traders said the session was orderly and the downdraft would have been worse were it not for an aggressive move by the Federal Reserve Board to slash interest rates by another half percentage point just before the markets opened. The Fed's move was followed by the European Central Bank and Bank of Canada in a concerted easing that sparked big rallies in Europe's battered stock markets.
The Dow's 7 percent drop to 8,921 was about equal to the 6.8 percent decline of the Nasdaq Composite Index, which fell 116 points to 1,580 in electronic trading. Neither was a record in percentage terms, but the indexes were down sharply even before the crisis and ended the day at their lowest levels in 21/2 to three years.
"The world is suddenly a riskier place," and the market's fall reflected that, said Richard Babson, chairman of Babson-United Inc. in Boston. "But the fact we were able to reach new records in volume of trading testifies to the resiliency of the institutions that we have in this country."
Traders said the reopening of the market amid the wreckage left by the terrorist attacks was strange and unforgettable, with the stench of smoke and rotting debris still filling the air around the exchange, and American flags, tanks and police on every corner of the financial district.
The honor of ringing the opening bell was given to New York City firefighters, feted as heroes for their attempts to rescue the more than 5,000 workers entombed inside the collapsed buildings.
Joining them on the dais of the exchange were Treasury Secretary Paul H. O'Neill and a handful of other regulators and legislators from Washington.
Americans anxiously awaited the reopening of the stock market, which came to symbolize the unequaled financial and economic power of the United States as well as the wealth of more than a hundred million Americans who have invested their savings in stocks for retirement, college education and other goals. Because of the market's high symbolism and visibility, it also has become a major component of consumer confidence in recent years.
As expected, the stocks hit the worst were those of industries devastated by the crisis — airlines, insurance, travel, entertainment, banking and brokerages.
Airline stock indexes plummeted 32 percent and hotel stocks fell 27 percent.
But some industries benefited from the vastly changed economic and geopolitical terrain created by the attacks. Defense stocks soared by 26 percent, and consumer staples like beverages, drugs, tobacco and food gained.
Gold stocks, considered a safe investment in times of crisis, continued their upward climb with a 4 percent gain, and the stocks of security companies skyrocketed.
Mr. Babson noted that the tragedy was producing some unexpected results — such as a newfound need by American businesses to stock up on inventories after a decade of keeping inventories lean in a "just in time" management system that was premised on reliable and inexpensive air cargo service. That has been swept aside with the interruption of air service nationwide, while the stocks of local producers that may charge more for their goods but require no air transport have received a boost, he said.
"It's an entirely different world," he said. While the United States is probably in a deep recession partly as a result of the attacks, the pickup of spending on inventories, security and other areas could help the economy make a robust comeback next year.
Another big change that should help the economy and the markets recover is the concerted efforts by the central banks and governments throughout the world to cushion the economic damage and jointly attack the plague of terrorism that created the calamity, he said. U.S. interest rates are at their lowest levels since the 1990-91 recession.
Congress last week approved a $40 billion rescue assistance package, and legislators were working on a bailout package for the hard-hit airline industry that could include $2.5 billion in grants and $12 billion in loans. Both plans would be paid out of the $157 billion Social Security surplus in a move that would have been politically impossible before last week's tragedy.
Despite yesterday's big losses, traders and investors were restrained in selling stocks, with few attempting to earn profits through short selling on the market's widely anticipated decline, said Brian Piskorowski, market commentator with Prudential Securities in New York.
Stock buybacks by 75 companies including General Electric Co., Intel Corp. and Cisco Systems Inc. buoyed the market some. But yesterday's huge declines will precipitate another round of selling today, Mr. Piskorowski said, because many investors will be forced to unload stocks as a result of calls on their margin loans.
Still, many traders were hopeful that the worst of the selling was behind them and the market would be able to establish a bottom at its new low levels.
Many investment advisers appealed to the patriotism of their clients yesterday to avoid selling stocks and to even buy shares to show that Americans still had confidence in the solidity of their economy.
Major brokerages like Merrill Lynch & Co. and Charles Schwab Corp. sent e-mail messages to their clients advising them to wait out the market downturn.
Traders said they saw little evidence that patriotism buoyed the market, but small investors did appear to heed the advice and largely stayed out of the market. Share redemptions at mutual funds, which manage about $3.6 trillion in assets, were running above normal but were nowhere near the frenzied levels seen in past crises.
"It doesn't appear to be approaching anything like the '87 crash," said Steven Norwitz, spokesman for T. Rowe Price funds in Baltimore, which manages about $160 billion. "Even then, the industry only had about 2.5 percent of its assets redeemed that day. We won't come anywhere near that."
John Collins, a spokesman for the Investment Company Institute, said small investors remain focused on long-term goals such as saving for retirement and college education. "I wouldn't be surprised if there's not much of a reaction to this tragic period because of their long-term orientation."
Redemption activity at American Century Investments, with $85 billion under management in Kansas City, Mo., was also slight, said Laura Kouri, a company spokeswoman.
"Everything today went pretty much according to script," she said. "It started out with a strong downward adjustment, then we had a patriotic bounce, and then it's kind of run out of gas. But it's pretty much what we expected."
Kristina Stefanova contributed to this report.

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