Shocked investors did almost nothing with their money in the week following the terrorist attack, as stock markets collapsed and the economic outlook worsened. Before the World Trade Center disaster, it seemed plausible that the country might skirt a recession.
Now, however, a recession a mild one, at least is in the cards.
Too much business stopped after the terrorist attack. Unemployment will be somewhat higher than would otherwise have been the case. Consumers will hunker down saving more and spending less.
Business profits won’t recover as fast as investors had hoped. That’s one of the reasons the markets plunged. Instead of bottoming out around yearend, the economic downturn might not be over until spring or even summer of 2002.
Stocks still selling at high valuations are being taken out and shot. So are the stocks caught in the backwash of the terrorist attacks: casualty insurers, entertainment companies, financial firms, high-tech firms dependent on renewed economic growth.
Some stocks could prosper from the disaster debris-removal companies, construction firms, defense contractors.
But Wall Street was playing with a new rulebook last week.
First, investors have to assess the probable success of President Bush’s call to arms against terrorists. Then we have to see how long it takes for consumers to gain confidence again.
The sooner the country feels satisfied and reassured, the milder the recession will be, said economist Mark Zandi of Economy.com.
Both fiscal policy and monetary policy are riding to the rescue of business and stocks.
The Federal Reserve cut interest rates and is pouring extra money into the banking system, to avert the risk of a systems breakdown or massive loss of confidence. Congress is preparing spending bills, starting with $40 billion for such projects as rebuilding the Pentagon and New York, and perhaps $15 billion to rescue the endangered airlines. This massive stimulus should work.
Consumer strategies
Until then, what should consumers do?
Pay off debt! This is no time to add to the amount you’re borrowing.
Debt is your enemy when workers are losing jobs.
For investors, stocks in general looked like screaming buys at the end of the first week of trading after the attack, as long as you’re in the market for the long term.
You never know about what might happen to the stock of any individual company. But the market as a whole looked cheap. The best way to buy “the market” is by owning index mutual funds.
No one can tell in advance how low any bear market will fall. By the time you read this, prices might have climbed. The week after that, they might fall again.
Because you don’t know, the wisest way to buy stocks is to “average” into the market. If you have cash you want to invest, consider investing one-sixth of it every month, for the next six months.
If you’re in a 401(k) or 403(b) plan, keep making your regular monthly investments. In fact, invest more if you’re not putting in the maximum the plan allows. Adding more money when stocks are low helps you grow a larger nest egg when they rise again.
Maintain the split between stocks and bonds that’s good for your age and circumstances.
Dealing with disputes
If you’ve worked with a stockbroker who did you wrong, and brought an arbitration case, call your lawyer to see if your case is going to be delayed.
A number of firms, including Morgan Stanley Dean Witter, had offices in the World Trade Center. Some of the work was backed up on computer but not all. “We have to recreate those cases,” a spokesperson said. And all the time they’re working, they’re grieving, too.
The National Association of Securities Dealers, which handles most industry arbitrations, has granted all parties an extra two weeks to get paperwork in. Most cases involving selected firms (so far, Morgan, Merrill Lynch and Smith Barney) have been delayed until Dec. 3, said Linda Fineberg, head of NASD’s Dispute Resolution Program.
Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.
