Stocks fall to lowest level since 1997 as Dow drops below 6,800
NEW YORK -- If there ever was a symbol of investors' lack of confidence in the government's ability to stem the financial crisis, it was the Dow Jones industrials plunging below 7000 Monday and closing at levels not seen since April 1997.
Stocks are in free fall. Investors are in panic mode. The government's numerous bailout attempts — including its latest gambit to prop up insurer American International Group — have failed to restore hope.
And how low stocks must go before bottoming out is anyone's guess.
"It's a bloodbath, pure and simple," says Scott Black, president and portfolio manager at Delphi Management. "This is a vote of no confidence in the Obama administration. It doesn't matter what you own, everything is going down. It is a total capitulation. People are just terrorized and are throwing in the towel."
Wealth is being destroyed on Wall Street at a rate not seen since the 1930s. The gains from the 2002-07 bull market are gone. A big chunk of the huge profits from the 1990s dot-com stock boom have been wiped out. In all, after Monday's 300-point drop to 6763, more than 7,400 Dow points, or 52.3%, have disappeared since the October 2007 peak, the biggest-ever point drop.
Of all the bear markets in Dow's long history, only the 89.2% drop during the Great Depression was worse.
All that pain is calling into question the buy-and-hold strategy that once was sacred on Wall Street. And it's leading analysts to wonder if a generation of investors, many of whom have seen their retirement nest eggs lose more than half their value, will bail out of stocks for good. Some analysts say stocks, which posted zero gains for the 10-year period ended in October, are setting up for a second "lost decade."
"The danger is, you risk developing a generational divesture out of the stock market," says John Bollinger, president and founder of Bollinger Capital Management. "You could have an entire generation say, 'I don't care, get me out of the stock market.' Investors could flee stocks in 401(k)s, IRAs, trust accounts and their personal accounts. I think that is what is going on now."
Adds Frank Cappiello, chairman of Montgomery Bros. Cappiello in Baltimore:
"This is frightful — I've never seen a bear market without a rally. No one wants to step up to the plate. We're going to have a whole generation without enough to retire on."
A sudden fall
The rise and fall of the stock market has been sudden and swift. The peak of the market was hit in October 2007, when stocks were flying high amid record corporate earnings fueled by cheap money and massive risk-taking by investors who thought home prices and stock prices would keep going up forever.
But that investment thesis came tumbling down last spring, when the bursting of the housing bubble started to add up to massive losses for Wall Street banks and other financial services firms tied to bad mortgages. The near failure of Wall Street investment bank Bear Stearns in March 2008 and its subsequent purchase by JPMorgan Chase at a fire sale price was a key turning point, because it illustrated just how profound and dangerous the brewing financial crisis and credit crunch was to banks and the health of the economy.
