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Here's our best advice to investors in the wake of the terrorist attacks that, on Sept. 11, destroyed the twin towers of the World Trade Center and threw the financial world, at least temporarily, into a state of panic: Forget about stocks for awhile. A tragedy of this magnitude always makes it imperative to think about something other than money. And, more fundamentally, there's little chance that most investors can do much to protect their portfolios from whatever is going to happen in the markets in the short term.
When the U.S. markets reopen, which could be on Sept. 13 at the
earliest, there will almost certainly be a sharp sell-off. "My sense is that there are going to be a lot of people who just sell," says Peter Cohan, an investment strategist and author of E-Stocks. "We've already been in a nasty bear market, where people have their doubts about owning stocks. If they were waiting for a catalyst to convince them to just sell and put their cash in as safe a place as possible, this would be it."
It's likely that panic selling will push stocks far lower than even the economic repercussions of this disaster initially warrant. "I can't overemphasize the vulnerability of the markets right now," says Jim Oberweis, a portfolio manager at
Oberweis Asset Management. Peter Cardillo, chief strategist at Westfalia Investments, predicts an immediate 3% to 5% drop in major indexes when the markets reopen. World markets, many of which fell 5% to 9% before trading was halted on Sept. 11, provide the clearest signal of the likely magnitude of the plunge.
SHORT, SHARP PAIN? While the selling could initially be brutal, however, it will probably be short. So even if you get your sell order in, you run the risk of cashing out at the bottom -- and regretting it later. "Most of the short-term damage will be done in the first few minutes of trading, and there isn't much one can do about it," says Jim Stanton, editor of the Low Risk Strategy newsletter. His advice to investors: "Just sit tight."
The hope of many investment professionals is that this was a one-day
attack, and that stocks will soon be evaluated once again on their
fundamentals. That should allow averages to recover from panic levels.
"Things will calm down in the next five to 10 days," says Cardillo. "The first couple of days are going to be rough."
Stanton thinks this disaster may even provide the long-awaited "capitulation sell-off" from which the market can finally start to
recover. He sees a bottom for the Nasdaq at around 1350, and 1010 for
the S&P 500. "If the markets get down to my targets," he says, "it may be a buying opportunity."
That's assuming the terrorist attacks were a one-time event, and that the White House response goes a long way toward restoring confidence. "The Fed could help," says A.G. Edwards chief economist Gary Thayer, who thinks further rate cuts may be in order.
"STATE OF SIEGE." The scariest thought is that the terrorist attacks might not be over. "The question is: How are things going to unfold...are there other targets?" notes Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School. If there's more in store, "We could be in a state of siege for a long time." As Cardillo points out, it may be hard to determine the precise effect on stocks until a full assessment of the damage is in. And then, the ramifications will almost certainly filter throughout U.S. markets and the rest of the world. Adds Siegel: "This couldn't have come at a worse time for the world economy."
Adventurous investors may see opportunities emerge from this disaster.
Already, oil and gold stocks have rallied in international trading. For most of us, though, it's too early to be thinking of such things. Better to wait a few days -- or weeks -- before trying to reorient your portfolio. It's likely that you'll have plenty of more pressing matters to think about for the next few days. And in any case, rushing to sell when the market reopens could just compound the damage from a grievous tragedy.
By Amey Stone, with Eric Wahlgren, David Shook, and Mica Schneider in New York
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