Marketplace: News Archives

Wednesday, October 18, 2000
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It's Wednesday, October 18, 2000. I'm David Brancaccio.

For tonight at least, the Dow at 10,000 is no more. That closely-watched stock index ended formal trading today at 9975 on a drop of 114 points. It's the first close below this key benchmark since the brief side trip there on the Ides of March of this year. It could have been worse-and it was. Just as trading got underway this morning, the Dow plunged 433 points, four percent, with the Nasdaq uncomfortably close to moving below 3000. From New York, Marketplace's Michelle Brier has more on the news that confirmed the market's already cantankerous mood.

Brier: "It all began with IBM. The computer maker delivered a double whammy to investors when it reported its third quarter sales were down and fourth quarter prospects weren't looking much better. IBM single-handedly shaved 100 points off the Dow Jones Industrial Average and triggered a wave of selling that many traders said smelled like panic. On the floor of the New York Stock exchange this morning, Ted Weissberg , president of seaport securities said investors headed for the exits all at once."

Weissberg: "It just seems that clients, customers, whether they be institutions or individuals just can't help themselves. Its like, you can keep the cheese, let me out of the trap. It's the psychology and a lot of stock trading is all about psychology."

Brier: "Emotions continued to run high as several economic reports made investors add inflationary fears to their worries: consumer prices were up higher than expected for September. Housing starts edged up as well. Investors were in no mood to carefully consider their actions, says stock trader Israel Cohen."

Cohen: "You know that people sell out of fear. They call their brokers and want out of the markets. It's a sign of a major bottom."

Brier: "By mid-day, stocks began a remarkable recovery. Both the Dow and Nasdaq even flirted briefly with modest gains. Just as a computer maker IBM was blamed for starting the downward spiral. Another computer maker, Sun Microsystems was credited with igniting a rebound. Sun mistakenly posted its third quarter earnings on its website several hours ahead of schedule, reporting a rise in earnings of 88 percent. In New York, I'm Michelle Brier for Marketplace."

Herb Greenberg, a senior writer at TheStreet.com, says the IBM reaction today is a very telling example of how differently investors are now seeing the world.

Greenberg: "Trouble was on the wall and I know when raised those warning flags, even on IBM, people would say 'you're wrong, you're wrong, you're wrong.' They didn't want to believe you; they wanted to live in denial. And in the case of IBM this was a big surprise that their revenues were so low? The reality is that all of their competitors, their customers, their suppliers-they were all saying they were having problems. Don't you think that IMB would have a problem?"

October is historically a miserable month, but it also a month where share prices have also begun to climb the next peak.

Greenberg: "People right now are looking for a bottom in this market. You can't pick market bottoms. Somebody's going to pick it right, someone's going to be quoted as having said 'this is the bottom,' but it's dangerous in this environment because there's so many unknowns. As you and I both know the market hates uncertainty, and I still think we have uncertainty."

Uncertainty that includes the price of oil which gained $0.71 to close at $33.70 a barrel today and uncertainty about just how much of this expensive oil it will take to heat houses depending on how cold it gets this winter. And there's another cruelly-circular uncertainty dogging investors, Greenberg says.

Greenberg: "We have the reverse wealth effect. Everybody who felt wealthy because they had stock options or the value of their stock portfolio was astronomical-suddenly those people don't feel as wealthy as if they hadn't taken money off the table. I've heard great stories from people that are actually quite sad about how their lives have suddenly changed in the course of two weeks. And they're canceling vacations and they're canceling additions to their houses and maybe they'll take their kids out of private schools. This will have a trickle effect that will not hit at this point."

Herb Greenberg is a veteran market watcher at TheStreet.com.

Today, the investment research service company TrimTab reports that on Tuesday, Wednesday, and Thursday of last week investors pulled out 10 billion dollars from stock mutual funds. That's a lot for a three-day period, but it should be noted it's a small fraction of the 4 trillion invested this way.

The yield on the ten-year treasury note rose slightly to 5.94 percent-word came that consumer prices went up more than expected in September. A lot of the 0.5 percent rise for the month can be attributed to oil prices. The government's been waiting for the September Consumer Price Index, so it could finish its yearly calculation of how much social security payments will go up. The cost of living adjustment will be the highest since 1992: 3.5 percent. Marketplace's John Dimsdale reports.

Dimsdale: "Beginning next January, the average Social Security benefit will jump $29 a month to $845. That's a significant increase compared to most of the 1990s, when tame inflation kept cost of living adjustments closer to two percent per year. The yearly cost of living adjustments began in 1975 to automatically tie retiree benefits to changes in inflation. But the public policy director for AARP, John Rother, calls it a 'catch-up increase.'"

Rother: "It reflects inflation the previous year. So if there is a spike in energy costs, or health care costs, it will take a year for that increase to be reflected in Social Security checks."

Dimsdale: "Plus, the COLAs are based on prices in an overall market-basket of goods and services that don't necessarily reflect the expenses incurred by seniors. The obvious example is their higher medical costs. And Washington University's Social Security expert Merton Bernstein has found another extra retiree expense that is particularly relevant this year."

Bernstein: "Once you don't go to work, you stay home. And when you stay home you've got to heat your home."

Dimsdale: "So, while next January's benefit increase will be the largest in almost ten years, it won't cover the rising prices for home heating fuel-predicted to climb as much as 40 percent this winter. The cost of living adjustment for that won't begin showing up in benefit checks until January of 2002. In Washington, I'm John Dimsdale for Marketplace."

To review, the Dow today closed down 114 points that's 1.1 percent to close below 10,000-9975 to be specific. That's one percent below where it started the year. The Nasdaq is also down a little more than a percent for the year so far following today's 42 point drop. More details when we do the numbers.