- The Washington Times - Saturday, June 8, 2002

The stock market yesterday ended its worst week since the September 11 terrorist attacks, with major indexes touching close to the lowest levels of the recession.
The frenetic sell-off Thursday that slashed 172 points off the Dow Jones Industrial Average continued yesterday morning, subtracting another 152 points before a wave of bargain-hunting set in. The Dow ended down 35 points at 9,590, its lowest level since Nov. 12, capping a 3.4 percent loss for the week.
The market's other closely watched indexes the Nasdaq Composite Index and Standard & Poor's 500 Index fell close to their post-September 11 lows during morning trading and remained within spitting distance at the close. The Nasdaq lost 5 percent in the week to end at 1,535.
The stock market's troubles come despite signs that the economy is recovering from last year's shallow recession, a disconnect that analysts say is without precedent in modern history.
The downdraft has been attributed to a variety of problems from a long drought of good earnings news, and the constant threats of renewed terrorist attacks and war overseas, to hangover from the Enron scandal, with new civil and criminal investigations and indictments of major corporations announced almost every day.
Yesterday was no exception. The sell-off was triggered overnight by a discouraging report of sub-par sales at technology bellwether Intel Corp., then deepened amid news of a broadening criminal investigation of Tyco International Ltd. executives.
The daily drumbeat of scandals and a third year of poor stock performance has lowered confidence and raised doubts not only among U.S. investors, but also among foreign investors who had eagerly snapped up American stocks even during the recession. Their loss of enthusiasm is confirmed by a 6 percent drop in the dollar as foreign buying dwindled this spring.
"A host of uncertainties continue to hang over the market, from conflict in the Middle East to terror alerts at home," said Ed Yardeni, chief investment strategist at Prudential Securities. "Bad company news is hitting investors on a daily basis."
Despite these setbacks, Mr. Yardeni said he believes investors have become too pessimistic and are ignoring economic trends that turned favorable this year.
A jobs report from the Labor Department yesterday, for instance, showed the job market is recovering at the same time that wage gains have slowed enough to enable company profits to start flourishing again, he said.
The market did take some heart from the news, which helped spur an afternoon rally yesterday.
But investors fret that the recovery has buoyed mainly consumer spending and the housing market yet failed to trickle down to the hardest-hit businesses in technology and manufacturing, where growth drove the 1990s economic expansion.
"Investors are pretty glum right now. They are concerned that all of the economic stimulus we saw throughout 2001 is not producing the kind of economic response that we were anticipating," said Charles G. Crane, strategist for Victory SBSF Capital Management. "Corporations are really struggling."
John H. Makin, resident scholar at the American Enterprise Institute, said the questions hanging over stocks are feeding into each other in a negative spiral, stifling the atmosphere for investment that the market thrives on.
"The animal spirits that drive investment higher during good times are being subdued by widespread questions about stocks as an investment vehicle," he said.
"The failure of Enron Corp., the accounting irregularities tied to the virtual failure of Arthur Andersen accountants, and the attack by public officials and ultimately the courts on the reliability of information about stocks provided by brokerage houses and investment banks have all contributed to lower share prices," he said.
With small investors and professional portfolio managers alike losing money in stocks for a third straight year, some gurus say the market may take years to refurbish its image and return to profitability.
"There is a lot of negative psychology to get over," said Edward Hemmelgarn, president of Shaker Investments Inc. "The continued accounting issues that have come up tend to create a distrust among investors."
Laszlo Birinyi of Birinyi Associates Inc. said the "surprises" that companies keep delivering to the market, such as those from Intel and Tyco yesterday, will remain a barrier. "I think there's still a lot of things that need to be shaken out," he said.

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