The stock market always comes back. The big question is exactly when it comes back.
With the Dow Jones industrial average recently experiencing its worst single-week performance since the Great Depression, talk of recession is now at a fever pitch. Anxiety about the implications of the terrorist attacks on the World Trade Center and the Pentagon has only grown.
We can take some mild comfort from history: The stock market initially tanked after Pearl Harbor, the start of the Korean War, the Cuban missile crisis, President Kennedy's assassination, the U.S. bombing of Cambodia, the U.S. invasion of Grenada and the Gulf War, but a month later rebounded strongly in each case.
Furthermore, on Sept. 16, 1920, an anarchist set off a bomb on Wall Street that killed 40 people, injured another 300 and shut down the market. Yet stocks resumed their upward climb once trading began again.
Wall Street and investors, however, have never been big on history lessons. They understandably want to know what's going to happen here and now. Although recent comments from General Electric about its earnings were upbeat, there have been warnings from the likes of Dow Chemical, Walt Disney Co. and drugstore chain CVS. More warnings seem to be in the cards.
While some investors are poised to pick up bargains, a far greater number are afraid about the volatility in their existing investments. Several segments of the market are being most directly affected, for better or worse, by the horrific events of Sept. 11, 2001: surveillance and defense firms, airlines, oil companies, insurance firms and gold are all under the microscope these days.
"A breakdown in intelligence allowed the terrorist events to occur, so there will be more spending on counterintelligence measures to prevent such things from happening," predicted Bob Walberg, chief equity analyst with the San Francisco-based Briefing.com research firm.
Nonetheless, the terrorist events should serve as a rallying cry for updating the nation's entire defense system, he believes. Walberg recommends shares of L-3 Communications (LLL) in counterintelligence and surveillance equipment and Northrup Grumman (NOC) in defense. He also likes financially solid Southwest Air (LUV) and the inexpensively priced stock of United Airlines (UAL). The airlines at most risk because of heavy debt loads are Continental Airlines and Northwest Airlines, he believes.
"Oil prices will probably remain somewhat above their normal level because of the war component, so a normal range of $26 to $28 a barrel becomes $30 to $32 a barrel," predicted George Gaspar, oil service analyst with Robert W. Baird & Co. in Milwaukee. "You're going to see a reduction in the use of jet fuel by the airline industry, but an increase in the use of jet fuel for the military."
Gasoline demand should increase because people will be doing more driving, rather than flying, he expects.
Gaspar recommends attractively priced shares of Chevron (CHV), whose merger with Texaco has been approved; Exxon Mobil (XOM); and Phillips Petroleum (P). In natural gas, he recommends Apache (APA), a diverse independent domestic gas firm that also has a strong oil business.
"Insurance industry losses of $30 billion to $40 billion from the terrorist attack are not out of the realm of possibility," said Matt Mosher, vice president of the property/casualty division of the A.M. Best insurance rating service, Oldwick, N.J. "While there is some likelihood of insurer bankruptcies, I don't expect to see any major company insolvencies, though this will depend on the size of this year's losses overall."
Finally, gold isn't the haven it once was in times of world crisis.
"There is more interest in gold than there has been at any time over the past few years, which is partially a result of the terrorist events, but I don't think you're going to see a major flight out of the dollar or out of U.S. equities," said Vanessa Motto, associate director of the CPM Group commodities research firm in New York.
The recent temporary initial pop in gold prices wasn't significant or prolonged because people still have strong confidence in the United States and its economy. Amen to that.
Andrew Leckey answers questions only through the column. Address questions to Andrew Leckey, "Successful Investing," 98 Henry St., Dept. 183, Brooklyn, N.Y. 11201, or by e-mail at successinv@ aol.com.