KUDOS to the patriotic Americans who went out and bought shares of stock yesterday. They were responding to a grass-roots e-mail campaign asking investors to show their support for America by buying American stocks.
And it almost worked. The Dow Jones Industrial Average, the benchmark for the overall U.S. stock market, had gains for most of the day, until it slipped into negative territory at the very end of the trading session.
Too bad Wall Street’s institutional traders had to go and muck things up.
“The big sell-off on Monday generated the opportunity for short-term traders to feast on some of the stocks that really got hurt,” said Charles Carlson, author of “The Individual Investor Revolution.”
The only problem, Carlson said, is that these traders will usually turn around and sell a stock after it’s risen as little as $1 in price, which could explain the selling pressure that brought the markets down by the end of the day yesterday. Institutional investors do not have the long-term buy-and-hold strategy that most individual investors follow.
So blame the Wall Street bigwigs for yesterday’s sell-off. And blame them today if the markets turn down for the third consecutive day.
“For a real gauge of institutional sentiment, look at the last two hours of trading, because those traders tend to jump in at the end of the day, and it sets the direction for the next day,” Carlson said.
That could mean bad news today.
And there’s more bad news ahead. Most economists are now convinced the U.S. economy will not be able to stave off a recession, and corporate profits, already slim, are disappearing.
“In general, I think investors need to get more cautious,” said Don Ross, chief investment officer for National City Bank’s Armada Funds.
“I’m still trying to stay bullish, but I no longer think we can skirt recession, and I’m not totally convinced that we’ll have an economic recovery in the first half of 2002.”
The bad economic outlook is making matters worse for corporations that were already struggling to eke out a profit.
Just yesterday, dozens of companies issued earnings warnings. The list included Honeywell, the big industrial conglomerate, and Travelocity, the online travel site. Stride-Rite and The New York Times also put out bad news.
And that’s just the tip of the iceberg.
“We’re looking at something worse than 20 percent decline in earnings for the S&P 500 compared with the same quarter last year,” said Chuck Hill, director of research for Thomson Financial/First Call, which tracks corporate profits.
So, if you’re planning to fulfill your patriotic duty by buying American stocks, be sure you’re doing so with a long-term goal in mind. Rest assured that the U.S. market has never posted a loss in any 10-year period.
In fact, markets usually rise sharply in the years following a news-triggered sell-off like the market downturn that followed the assassination of President John F. Kennedy or the bombing of Pearl Harbor.
“The one good thing, if anything good can be said to have come from this tragedy, is that stocks are going to find a bottom faster,” said Carlson.
“That’s ultimately healthy because the market can now get down to a true base from which it can resume its ascent. It sets the table for a rebound next year, which, before last week’s tragedy, I wouldn’t have predicted.”
E-mail: bpiskora@nypost.com