YOUR 401(K) IN 401 CHAOS
The New York Post
By Paul Tharp and Nathan Shike
July 23, 2002
More than $300 billion vanished from stock funds and 401(k) retirement nest eggs yesterday as the stock market continued to plunge. Gloom over corporate corruption and the bankruptcy of long-distance giant WorldCom, the biggest bust ever, pushed investors to unload even more shares into the two-week selling frenzy.
The benchmark Dow Jones industrial average closed in the 7,000s for the first time in four years, losing 234.68, or 2.9 percent, to finish the day at 7,784.58.
The Dow's slide in the past two weeks has been the steepest since the stock market crash of 1987. The Standard & Poor's 500 Index, which is a broader measure of market health than the Dow, declined 27.90, or 3.3 percent, to 819.85. The Nasdaq Composite Index, home of many high-tech stocks, shed 36.50, or 2.8 percent, to 1,282.65.
A total $2.7 trillion in stock value has evaporated since Sept. 11, a staggering average of $8.7 billion each and every day.
"It's a pitiful market. It's an emotional market that is selling on fear," said Brian Pears, head of equity trading at Victory Capital Management.
Another market watcher said the Dow could fall another 500 points this week.
"It's just going to be further deterioration, pain, malaise and lack of interest in the market," said William Schneider of UBS Warburg.
The only winners yesterday were big professional players and hedge funds that placed complicated bets that the market would fall, said analysts.
About 45 percent of the trading is from those "gloom and doom" players, said Larry Wachtel of Prudential Securities.
"They're going in and out fast with short plays, and causing all the volatility. But they're winning every day," Wachtel said.
Short sellers borrow stock for a small fee, then sell it. Once the stock price falls, they buy it back at a much cheaper price - and pocket the difference.
Small investors who don't have the savvy to make such complex moves say they feel more helpless than ever.
"My IRA is in the toilet. This market is affecting everything. And the economy has me laid off right now, so it's real bad," said Tom Valenti, 48, who lost his job at Boeing in Seattle.
Other small investors cling to hope, however.
"I'm still investing. I invested $90,000 last month, mainly on the indexes - the S&P and the Nasdaq. But I lost about $200,000 in retirement money, so that was pretty bad," said Stuart Rabinowitz, 50, a computer software programmer.
Mutual fund investors continue to withdraw money from stock holdings, with more than $23 billion pulled from stock funds in the two weeks ended last Tuesday. The record for an entire month was September's $27 billion.
"Psychology has taken over here," said Phil Orlando, chief investment officer of Value Line Asset Management.
Added Kevin Cohen, senior trader at Wedbush Morgan: "We need this flushing out to find the bottom. But people are thinking: ‘Why buy it today, when you can buy it cheaper tomorrow?' "