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The Honolulu Advertiser
Posted on: Wednesday, September 11, 2002

Market resilient but can't lick anemia

By Adam Shell
USA Today

NEW YORK — One year after terrorists attacked the nerve center of the American financial community, there has yet to be a full healing of the stock market and investors' bruised psyches.

Exchanges mark anniversary

• Exchanges around the world have a variety of observances and special trading times planned today. Many plan a moment of silence in honor of those who died in the attacks on the Pentagon and the World Trade Center a year ago.

• A number of exchanges and markets — including the New York, American and Nasdaq — will delay their openings until 11 a.m. EST because of remembrance services.

• Some markets will have shortened trading days, including the bond and foreign exchange markets.

• Cantor Fitzgerald LP, whose offices were located among the top floors of the 110-story north tower, and lost 658 employees in the attacks, will be closed. The company will have a private remembrance service in Central Park.

While Wall Street has displayed remarkable resiliency, the Dow Jones industrial average is still more than 1,000 points, or 10.4 percent, lower than it was before last year's attack on the World Trade Center.

Yesterday, the Dow rose 83 points to 8,603, far below its Sept. 10, 2001, close of 9,606.

The poor showing contrasts sharply with initial predictions that stocks would face short-term turbulence but fare better once the initial panic subsided.

Instead, it's the first time since Pearl Harbor that the Dow is not higher a year after the start of a major war, Ned Davis Research says. The Dow was 23.9 percent higher a year after Operation Desert Storm started in January 1991.

Terrorism isn't the only problem dogging the market. Corporate scandals have hurt investor confidence, as have concerns about the pace of the recovery in the economy and corporate profits. The hangover from the tech bubble of the late 1990s and the anxiety caused by talk of war with Iraq and fears of more terrorist attacks also have sidelined buyers.

"Investors have had to deal with many issues over the last year in addition to terrorism, and none of those have been pretty," says Hugh Johnson, chief investment officer at First Albany.

The myriad worries have resulted in steeper declines for broader indexes. The Standard & Poor's 500, down 16.7 percent since its close on Sept. 10, 2001, and the Nasdaq composite, 22.1 percent below pre-attack levels, are also trading below September's panic-induced lows.

The value of all U.S. stocks is $1.8 trillion lower than before the terrorist attacks, as measured by the Wilshire total market index.

The past year has been a wake-up call for investors: The days of ignoring risk and taking the word of analysts and corporate executives at face value are over.

Sept. 11 was the "end of the naivete" of the '90s bull market, says Phil Dow, investment strategist at RBC Dain Rauscher.

Investors can only hope that, as history has shown, time will heal stocks' wounds. Two years after the outbreak of U.S. fighting in Iraq, Vietnam, Korea and Europe after Pearl Harbor, the Dow was up an average 14 percent, MarketHistory.com says. Five years out, the Dow was up an average 52 percent.

But there's a caveat. The Dow started to break down two years after America's full military commitment to Vietnam began in August 1964. Five years later, dragged down by war and mired in the early stages of a 16-year bear market, the Dow was 1 percent lower than at the start of the Vietnam War.

Gibbons Burke, historian at MarketHistory.com, warns that the war on terror — which President Bush says has no end in sight — coupled with an unforgiving bear market, does not bode well for stocks: "Like Vietnam, there's more uncertainty in the war on terror."

Optimists argue that all the hand-wringing over Iraq and terrorist threats may be overblown.

"The biggest theme for the next year and a half will be a shift from fear and pessimism to optimism," says Jim Paulsen, chief investment officer at Wells Capital Management.