The shock waves from last week's terrorist attacks hit most Americans hard Monday, as the reopened stock market plunged in a wave of selling that wiped out $590 billion from investors' brokerage and retirement accounts.
Despite the biggest drop in nearly four years by the Dow Jones Industrial Average, which lost 684.81 points, or 7.1 percent, and fell below 9,000 for the first time since December 1998, local investors and investment advisers repeated their intention to stay in the stock market.
It was the biggest point drop ever by the Dow, although in percentage terms, the decline was the 14th worst ever and only a third as big as the 22.6 percent plunge during the 1987 Crash.
"I think people are overreacting. I think they're scared," said Colden investor Howard Ewert. "I'm just holding. I'm buying nothing and I'm selling nothing."
Neither was Anthony J. Ogorek, who runs Ogorek Capital Management in Williamsville. "I would really caution against making short-term plays," he said. "The market definitely will heal. All it needs is time."
The question, however, is how long that healing process will take. Although the Federal Reserve moved Monday morning to shore up the markets and the economy by cutting short-term interest rates by half a percentage point and dozens of companies unveiled plans to buy back their shares, those moves couldn't prevent Monday's sell-off, which mirrored the declines suffered by European and Asian markets last week.
The plunge pushed the Dow to 8,920.70 by the end of the day. The Nasdaq Composite Index plummeted 115.83, or 6.8 percent, to 1,579.55. The S&P 500 dropped 53.77, or 4.9 percent, to 1,038.77 in its biggest loss since April 14, 2000. In all, the sell-off wiped out $590.6 billion from the value of U.S. stocks, as measured by the Wilshire 5000 Total Market index, the market's broadest indicator.
And even though they remained committed to the stock market, local investment advisers warned that it could take a long time for share prices to recover.
"I think we're going to have a challenging market over the next several years," said David Elias, the chief investment officer at Elias Asset Management in Amherst. "I don't know what the market's going to do over the next three to five weeks or the next three to five months, but I think the market's going to be significantly higher over the next three to five years."
As the stock market prepared to reopen Monday for the first time since last Tuesday's terrorist hijackings, most investors were expecting a big sell-off, with predictions commonly forecasting a decline of between 5 percent and 10 percent.
With the stock market already stumbling under the weight of a weakening economy and slumping corporate profits, last week's attacks raised further fears that a recession is unavoidable as the nation's major airlines make major cutbacks, travel and shipping are disrupted and consumer confidence is shaken.
While Monday's plunge reflected the reaction by investors to last week's attacks, Ogorek said how stock prices fare in the coming weeks will depend heavily on whether consumers continue to spend as much as they were before the hijackings. If they cut back, it would weaken what, until now, has been a pillar of strength that has helped prop up an otherwise sputtering economy.
"This is really the first inning," Ogorek said.
The significance of Monday's decline by the stock market was enhanced because nearly half of all U.S. households now own stock, either directly or through retirement accounts, such as 401(k) plans. The average 401(k) plan had a balance of $58,774 at the end of last year, according to a survey of 8.3 million 401(k) plan participants by the Employee Benefit Research Institute and the Investment Company Institute.
"Anybody who's got money in a retirement plan and they're in it for the long term, don't mess around," said Christopher Carosa, a Honeoye Falls money manager who runs the Bullfinch Funds' Western New York Series mutual fund. "This is the day we catch up to everyone else."
At the same time, investors who are uncomfortable with the market's volatility or are approaching retirement age, might want to consider shifting some of their money to more conservative investments once stocks start to rebound, said Francis G. Leonard, the president of Courier Capital Corp., a Buffalo money management firm. "Some people have allowed their investment mix to get too aggressive," he said.
Another wild card is whether last week's attacks were one-time incidents, or if more terrorist attacks will take place in the coming weeks and months, possibly in response to retaliatory strikes that could be made by the United States.
"You say, this is one event, but in the back of your mind, it hasn't necessarily ended," Leonard said.
Still, Monday's plunge did not diminish the confidence that some local advisers have in the stock market. Elias, for instance, was buying shares of financial services giant Citigroup, General Electric and ExxonMobil for some new clients.
"We've gone through this before with the 1987 crash, the Persian Gulf War and the Asian Crisis in 1997," Elias said. "When the market goes back up again, these are the companies that are going to lead the market higher."
Ewert, the Colden investor who co-authors the Sixth Sense investment newsletter, said he'll be waiting -- and watching. "I've got a lot of Treasury bills, and it's proven to be the right thing to do over the last two years," he said. "But if people start throwing things out the window, I'll be there."
Despite the big loss, Ogorek was pleased that the stock market could hold up in the face of intense selling pressure in some sectors, such as airline, insurance and hotel stocks. Major airline stocks, including American Airlines parent company AMR, United Airlines parent UAL Corp., Delta Airlines and US Airways all lost 39 percent to 50 percent of their value.
"It really is remarkable that the entire market was open -- although at prices that might make one blanch -- within an hour or so of the opening, which I think is a testament to the stability of the U.S. markets," Ogorek said. "I think today's bar was just to get the market open, and any decline less than 10 percent was a real victory."