Attacks, investment fears drive market dip
By MARIBEL MOREY
Assistant News Editor
The Dow saw its largest point loss in history Monday as the industrial average plummeted 684.81 points, or 7.1 percent, to close at 8,920.70 — its lowest level since December 1998. Although Monday's stocks dove, its percentage loss today was still smaller than its 22.6 percent decline on Oct. 19, 1987, when the stock market crashed.
According to Notre Dame finance professor Roger Huang, the stock market's volatility is based on perception.
"The stock market goes up and down reflecting the long-term prospects of the company according to the perception of the shareholder," he said.
Confidence in America was shaken when hijackers led two planes into the World Trade Center towers and the Pentagon last week, causing thousands of casualties in what seemed to be an attempt to destroy the American symbols of capitalism and militarism.
"Once [the stock market] started falling, people could have lost hope and started selling," said Notre Dame economics professor Amitava Krishna Dutt. "A loss of confidence probably led to this."
Before the opening of the New York Stock Exchange Monday morning, the government asked shareholders to keep their money in the market as a sign of patriotism.
"The patriotic thing was not to sell stocks, but it could give the wrong signal to the market too," Dutt said. "People in the stock market are interested in making gains. The patriotic plea might not work."
Instead, the government should perhaps keep interest rates low or lower them even more and put some expenditure such as rebuilding efforts in New York, Dutt said. Also "[the government should] reduce uncertainty of the general climate. Whether there's going to be a war or not, make it clear," he said. "This is the plan and this is what we're going to do. The worse thing for the stock market is uncertainty."
The stock market is in an extremely volatile situation and it all comes from how people will react to current events. The airline, entertainment and insurance industries saw a hard hit in the market Monday. "The first time the stock market was able to reflect the information [was yesterday]," Huang said.
Shareholders were able to contemplate the futures of these industries and take action accordingly.
"If the market had been open, it would have appeared smoother, but since it closed, all accumulated so the movement seems extremely dramatic."
started to lay-off employees, such as Continental who downsized 14,000 employees Monday. "[The airline sector] will shrink. It's impossible to reduce uncertainty and maintain confidence," said Dutt. However, increased security in airports means more jobs will be available. One sector will be losing, but the other will be gaining too, he said.
While jobs may shift from one sector to another in the airline industry, other companies affected directly by this tragedy face different issues. Cantor Fitzgerald, a bond brokerage firm that occupied the top floors of the north tower, lost close to 800 of its 1,000 employees.
"Imagine this company trying to stay alive with a loss of that many employees," Huang said.
"Companies suffering such heavy losses need to undertake actions to secure the long-term survival and then they'll be able to get into the recruiting process."
But Dutt did offer some hope for the current situation.
"One should take heart in that the [stock market] fall has happened before and then could be checked," said Dutt.
All News Stories for Tuesday, September 18, 2001