Major stock indexes posted heavy losses yesterday on the first full day of trading since last Tuesday”s terrorist attacks on New York and Washington closed Wall Street for the longest period since the Great Depression.
Despite the Federal Reserve lowering interest rates early yesterday morning by half a percentage point, to 3 percent, at the end of the trading session, the Dow Jones index of blue-chip stocks was down 7 percent to 8,920.70. The 684.81 point loss was the Dow”s biggest drop ever, while the technology-heavy Nasdaq index fell 115.83 points to a new 52-week low of 1,579.55.
In total, more than 2.3 billion shares were traded on the Dow, a new record, while the index dropped below 9,000 for the first time in 2 1/2 years.
The airline and insurance industries were hit especially hard, with news that airlines expected to post heavy losses and that the World Trade Center bombings could cost insurance companies up to $30 billion. Airline shares fell as much as 65 percent, erasing $12.2 billion in market value. US Airways, the nation”s sixth-biggest carrier, said it would cut 11,000 jobs and reduce its schedule by 23 percent.
“What you”re seeing is a reaction to concern over what effects the terrorist attacks will have on our economy,” said Jon Schmitz, director of equity strategy at Fifth Third Bank, a bank that has become a major player in the Midwest market after its acquisition last year of Grand Rapids-based Old Kent Bank.
“The market is anticipating that because we already have a slowing economy, this will slow it even more,” Schmitz said, adding that investors are relatively calm. “History tells us that over the past 60 years, markets have had negative reactions but have always tended to rebound.”
University finance Prof. M.P. Narayanan said the fate of the economy ultimately rests with the consumers.
“Confidence is the bottom line,” he said. “The last several months, the economy lagged, but consumer confidence did not, keeping the markets going. What will happen to confidence? No one really knows,” Narayanan said.
One of the leading indicators of consumer confidence, the University”s Consumer Sentiment Index, will be released the last Friday of September and provide economists with a picture of how Americans view the present state of the economy.
Schmitz pointed out that most analysts and investors are now being influenced by President Bush, rather than Federal Reserve Chairman Alan Greenspan.
“The market is definitely more sensitive to how things turn out politically,” Schmitz said.
Students for the most part seem reluctant to put any money into stocks, bonds or mutual funds.
“By no means am I going into the market anytime soon,” said first-year Business student Joe McMullin. “I”ve been cautious the past 12 months as it is, and last week”s events only add to that.”
LSA junior Amy Bakst shared that sentiment.
“There”s no way I would put money into anything on the market right now,” Bakst said. “However, down the road, if really strong companies are being undervalued, who knows? What goes up must go down and vice versa.”
Around the globe, markets were mixed. Tokyo”s Nikkei index reached a new 18-year low, and Hong Kong”s Hang Seng index dropped noticeably, while European markets slightly rebounded on news of interest rate cuts by European banks.
Last week”s trading halt on the NYSE was the longest period of closure since a Great Depression bank holiday in 1933.
The Associated Press contributed to this report.