Stocks: How low can they go?
By Adam Shell
USA Today
NEW YORK — The search for the elusive bottom of the stock market continued yesterday as more fallout from the Enron scandal knocked blue-chip stocks down for the 11th time in the past 12 sessions.
The latest scandal to shake investor confidence involved the nation's biggest banks, Citigroup and J.P. Morgan Chase, which lawmakers allege helped the fallen energy giant hide debt. Both banks denied the allegations at a Senate hearing, but stocks of both plunged more than 15 percent.
The Dow fell 82 points to 7,702, pushing it down 23.1 percent for the year. The Nasdaq composite fell another 4 percent, and the Standard & Poor's 500 lost 2.7 percent to 797.70, its lowest close since May 1, 1997. The S&P 500, a broad market gauge, is down 47.8 percent from its peak and is close to topping the 48.2 percent decline suffered in the 1973-74 bear market.
Another $300 billion in market value was wiped out yesterday, says Wilshire Associates.
In a sign that the selling might be close to exhausting itself, investors are dumping premier blue-chip stocks in the Dow as if they were fly-by-night Internet firms, experts say. In what amounts to a slow-motion market crash, the Dow has lost 2,402 points, or about 24 percent of its value in the 40 trading days since Memorial Day.
"We haven't had a one-day capitulation nightmare this summer; instead, we've had a 40-day daydream of falling off a cliff," says Fane Lozman, chairman of market research firm Scanshift.com.
Despite the fall of mighty blue chips and signs that many mutual fund investors are dumping their stock funds, many Wall Street pros are still not convinced that the high level of fear and panic selling needed to mark a true market bottom has occurred.
"People are hanging on for dear life, but they don't know how long they can hang on," says Alan Ackerman, market strategist at Fahnestock & Co.
While many of the so-called "fear gauges" have spiked up to levels approaching those that signaled the market low after Sept. 11, pessimism is still not high enough, considering that stocks are lower now than they were in September, says Todd Salamone, director of research at Schaeffer's Investment Research.
For example, yesterday, the Chicago Board Options Exchange Volatility Index, or VIX, rose to 52, compared with 57 at the height of the panic selling after Sept. 11. During the Russian financial crisis in 1998, the VIX hit 60.
"People are vocally expressing fear, but their actions are not reflecting that fear," says Salamone, who is betting that more selling is on the way.
