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The Honolulu Advertiser
Posted on: Tuesday, October 1, 2002

Markets plunge to new lows in third quarter

By Adam Shell
USA Today

Traders in the 10-year Treasury Futures pit of the Chicago Board of Trade compare notes after the close of business yesterday. Treasuries maturing in 10 years or more are headed toward their best quarter since 1989, while Wall Street wraps up a dismal third quarter.

Bloomberg News Service

Major indexes' third-quarter:

The Dow fell 1,651.33, or 17.9 percent.

The Nasdaq dropped 291.15, or 19.9 percent.

The S&P stumbled 174.53, or 17.6 percent, its worst quarterly loss since the fourth quarter of 1987, when it slid 23.3 percent.

So far in 2002:

The Dow has fallen 2,429.57 points, or 24.2 percent.

The Nasdaq has plunged 778.34 points, or 39.9 percent.

The S&P has dropped 332.80 points, or 29 percent.

NEW YORK — Logic says stocks can't go down forever. But after watching the Dow Jones industrial average tumble for nearly three years — and sink 17.9 percent in the past three months alone — countless investors are starting to wonder if stocks will ever go up again.

Wall Street wrapped up another dismal quarter yesterday.

The Dow, Standard & Poor's 500 and Nasdaq composite indexes all declined 17 percent or more from July through September.

It was the worst quarterly performance since the fourth quarter of 1987 for the Dow and S&P 500, which dropped 17.6 percent.

The Nasdaq, which fell 19.9 percent in the third quarter to 1,172.06, is at a fresh six-year low. The Dow at 7,591.93 is at a new four-year low.

The latest round of intense selling has ignited a fierce debate on Wall Street about where stock prices go from here. Is a bottom near or far off?

  • Bulls say a painful bottoming process is nearing an end. The market is "at least in the very late stages of the decline," says Woody Dorsey, president of Market Semiotics, which specializes in behavioral finance.
  • Bears tick off fresh worries ranging from war with Iraq to a potentially debilitating bout of deflation. Added up, they are capable of keeping investors on the sidelines and stock prices in the doldrums indefinitely.

Older concerns about terrorism, questionable corporate accounting, a possible double-dip recession and meager corporate profits are also prompting investors to bail out — or to wait until stocks get cheap enough to motivate them to buy.

There is a growing sense on Wall Street that the Dow's July low of 7,702 was just another false bottom and that more pain lies ahead.

Until the economy perks up and generates new jobs, Donald Straszheim of Straszheim Global Advisors says he expects little more than "sporadic, unsustainable rallies."

The market's short-term distress is being caused by a steady drumbeat of bad economic news, which is taking a major toll on investor sentiment.

A big chunk of selling is starting to come from frustrated mutual fund investors. Through most of the bear market, fund investors continued to shovel money into the stock market, confident that in the long term, stocks will rise. But the market's relentless pounding has shaken that confidence. For the first time since 1978, the S&P 500 is showing a loss for the past five years. In the three months ended Aug. 31, investors pulled $74 billion from stock mutual funds.

While many private economists say it's still unlikely, at this point, that the decline in the stock market will lead the economy back into recession, the continued drops make the already-fragile recovery that much shakier.

"The question is how much and how long," the declines will continue, says Tim O'Neill, chief economist for the Bank of Montreal, which owns U.S.-based Harris Bank.

Despite all the issues dragging the market down, investors can look to history for solace. October has earned a reputation as a "bear buster."