Investors Sit Tight In Region ‘I Was More Reactive Than My Clients Were,’ Post Falls Stockbroker Says
Spokane investors remained on the sidewalk Monday as Wall Street skidded to its worst daily point loss in history.
Brokerage lobbies were largely vacant, and some brokers reported that outbound telephone traffic exceeded inbound calls from clients.
Hand-holding was the order of the day, but some of the more venturesome were placing orders, brokers said. There was little selling.
And improvements in order processing eliminated the breakdowns that contributed to the previous record one-day drop, 508 points on Oct. 19, 1987.
“I was more reactive than my clients were,” said Rick Shenfield, the Edward Jones broker in Post Falls.
He said the firm has been preparing investors for a pullback, with the expectation a retreat would create some buying opportunities.
Clients, including two who were in his office at 6:30 a.m. Monday, were net buyers of stock throughout the day, Shenfield said.
‘This is just part of the market,” he said after the 554-point drop.
Shenfield said developments overseas will not erase the strengths of the U.S. economy. Earnings should continue to be good, he said.
At A.G. Edwards in Coeur d’Alene, broker Roger Duval said he expects markets to rebound today, but said Wall Street’s resiliency is less important in the short term than the economy’s long-term health. “I still think this is a bull market,” he said, calling mainstay stocks such as Intel, General Electric and J.P. Morgan “bargains” at Monday closing prices.
If the market does not show signs of a recovery soon after opening, today could be a near repeat of Monday, said Stan Covey, a broker at Empire Securities.
He said he thought the uptick in Hong Kong Friday had taken the pressure off world markets, but the activity only stayed the execution for a weekend.
Covey said calls were heavy Monday, with about half just seeking reassurance. There was more selling than usual, he said, but buying as well.
Many are extremely nervous, he said. “If they want to go to cash at this time, that’s a good decision for them.”
Bad as the day was for U.S. stocks, Covey noted that foreign stocks trading on American exchanges - especially telecommunications companies - were gored, in some cases losing more than 20 percent of their value.
On the bright side, bond prices continued their rally, pushing yields down to 6.12 percent on 30-year Treasury bonds.
Covey is concerned that investors have unrealistic expectations for their investments and markets in general.
One client’s response to news the Dow was off 450 points at that point was a casual “They’ve got to go back up,” as if that kind of selloff was not even thinkable, Covey said.
Also disturbing; a survey released last week that indicated investors expect their mutual funds to produce an annual return of almost 34 percent. “That’s scary,” he said.
The same survey taken just prior to the crash of 1987, Covey added, showed investors anticipated an annual return of just 8.5 percent.
Jim Simmons, president of ICM Asset Management in Spokane, called the high expectations “idiocy.”
ICM handles more than $1 billion in institutional money.
Investor complacency has been reinforced by market retreats, followed by sharp rallies that undermined calls for caution, Simmons said.
Just back from a three-week visit to China, he said even observers there thought Hong Kong was strong enough to withstand any potential market shocks.
The former British colony, now part of China, may be able to defend its currency, Simmons said, but other Southeast Asian markets may be less stable.
American companies may have a more difficult time selling their products in the region while its economic turmoil continues, he said.
Because much of the increase projected for earnings was based on growth in Asia, Simmons said domestic company valuations may decline to reflect the ongoing problems.
“You’ve got a fairly difficult environment in which to get people excited,” he said.
Simmons said the next week or two will be rough. How rough depends on how mutual fund investors take Monday’s news.
If they sit tight, the markets should ride the downturn relatively quickly, he said. A rush of redemptions will take the Dow down considerably further.
Simmons said buying opportunities should be better than they have been since 1990 when the market settles.
Ken Roberts, of Ken Roberts Investment Management, said only three of his 500 clients called Monday, and those were just looking for information.
He said he expects individuals to remain calm, but added that he was disappointed professional money managers apparently fueled the Monday blowup.
He recommends that individuals stick with an investment program if it has worked for them in the past.
Meanwhile, Roberts said the world’s central bankers are likely weighing what actions they can take that will stop a cycle that has chased markets around the globe for the last week.
“The last thing they want is for things to get out of hand,” he said.