Wall Street hopes to save America with the world's largest basement sale this week.
If long-term optimists step in to scoop up bargains this week, they could create a modest rally. Even this lukewarm news would be welcome after ferocious U.S. attack-related selling was responsible for Wall Street's worst week since the Great Depression.
Concerned about a U.S. military retaliation for the devastating Sept. 11 attacks, large institutional money-management firms dumped stocks last week, sending benchmark indexes to three-year lows.
"The attack wiped out all visibility we were developing," said Crit Thomas, head of growth equities for National City Investment Management Co.
For the week, the Dow Jones industrial average tumbled 14.3 percent. The loss was second only to a 15.5 percent drop the week of July 21, 1933, according to research firm MarketHistory.com. The Nasdaq composite fell 16 percent, and the benchmark Standard & Poor's 500 dropped 11.6 percent.
The New York Stock Exchange, which scrambled to get reconnected with Wall Street's scattered brokerages, traded more than 10 billion shares, its busiest week ever. That was half the total volume of shares exchanged last September, according to the NYSE.
Analysts' forecasts for corporate profits have dropped since the attack. Third-quarter earnings for companies in the S&P 500 are now expected to fall 16.1 percent from a year ago, versus a previously forecast 14.4 percent drop, said market tracker Thomson Financial/First Call.
And massive corporate layoff announcements boded poorly for future consumer spending and the economy.
"With layoffs going on, it's going to make the economic recovery look grim," said Peter Cardillo, director of research for Westfalia Investments. "We need to see a clear picture of the outlook."
But, he added, "I'm confident we'll have a technical rebound in the next few days. The market is oversold."
Indeed, analysts point to the long-term benefits of interest-rate cuts, tax cuts and government spending as reasons buyers will pony up to stocks in coming days.
"There was a lot of bad news last week and we saw panic selling," said Peter Gottleib, who helps manage $500 million for First Albany Asset Management. "But I think we'll start to see a bounce here. We'll see people willing to take the long-term perspective and come in and get some values."
Standard & Poor's said the U.S. economy will slip into a moderate recession in 2001, but its outlook for 2002 remains the same, as government spending kicks in to help repair shattered buildings and confidence.
"There will be a downswipe and then a substantial bounce back," David Blitzer, chief investment strategist for S&P said. "Congress is going to get down to business and spend a lot of money and that's what you need."
The Federal Reserve has chopped interest rates eight times this year to jump-start the economy, and Wall Street expects a ninth cut later in the year.
Analysts predicted European and Asian markets would continue to fall, but Gottleib said the United States has cushions against another selling binge.
"We have flexibility, compared to Europe," he said. "We're undertaxed, compared to them. Our corporations can move more quickly -- we can lay off people, reorganize, buy back stock. In Europe, there's more unionism and more government bureaucracy."
Wall Street will look to quarterly profit reports from retailer Bed Bath & Beyond, chipmaker Micron Technology and investment banks Bear Stearns and Goldman Sachs, among others.
Also due is the latest data on consumer confidence, which has plummeted to eight-year lows. Consumer spending props up about two-thirds of the economy.
"You're starting to get some really good values," Dirk van Dijk, portfolio manager for C.H. Dean & Associates, said. "We're trying to position ourselves now for what will be a lot better a year from now."
Lack of Visibility
The figure with the most influence on the markets recently might not be Alan Greenspan or Warren Buffett but Usama bin Ladin.
If history is any guide, U.S. action against those suspected in masterminding the attack will also boost stocks.
Stocks started slipping when Iraq invaded Kuwait in August 1990, but rallied when the United States-led coalition started its bombing campaign.
The Dow average sank 9.2 percent and the S&P 500 lost more than 7 percent from Aug. 2, 1990, to Jan. 17, 1991, according to market research firm RiskMetrics. But the following week the Dow rose 0.7 percent and the S&P 500 was up 2 percent.
Reuters contributed to this report