Stock gurus fear that the New York Stock Exchange could dip as much as 10% when markets reopen today, mirroring losses on overseas bourses amid one of the biggest dislocations Wall Street and the U.S. financial industry has ever seen.
Showbiz companies could feel a further squeeze on ad revenue and their stocks will reflect it, but still, they can thank their stars they’re not in airlines or insurance — two sectors likely to bear the brunt of the recent tragedy. Media’s corporate coffers will take a hit from days of non-commercial broadcasting and movie releases yanked from skeds won’t help investor sentiment.
It’s widely believed any initial market downturn on U.S. exchanges will be less severe than might have been true had trading resumed earlier. The four-day hiatus of U.S. market activity allowed for a cooling of emotions that could help curb negativity when trading resumes. There also have been calls for Americans to buy stocks on Monday to display their patriotism and to shore up markets, though it was unclear how realistic such pleas would prove.
Merger activity is likely to slow to a crawl as buyers and sellers grapple with lower valuations plus more subtle issues of corporate propriety and good taste in a time of national calamity.
“There may be more thought given as to how things are announced,” observed David Davis, an analyst at Houlihan Lokey Howard & Zukin. “Companies will try to inject some humanity into their pronouncements rather than just making things business-focused.”
One high-profile deal in the works is the proposed merger of Hughes Electronics’ DirecTV and News Corp. “As we sit here today, we don’t believe (the attack) is going to derail the deal,” an insider said, “but we have no idea what the market’s going to do when it reopens.” After all, a dip in Hughes stock before Sept. 10, and a rival bid by EchoStar had already complicated talks.
Meanwhile, Comcast, one of several suitors angling to buy AT&T Broadband, canceled an investor meeting set for Sept. 24. Some say the move leaves Comcast free to pursue its bid with less investor scrutiny.
Industry in disarray
Legions of bankers, brokers and analysts who facilitate these deals, make markets and churn out research are in disarray. The deadly attack killed hundreds at giant bond trading agency Cantor Fitzgerald Securities and left behemoths like Morgan Stanley Dean Witter, Lehman Brothers, Merrill Lynch and American Express, tenants at the World Trade Center or adjoining World Financial Center, scrambling for temporary digs uptown or in New Jersey or Connecticut. The New York Stock Exchange went dark for four days, its longest hiatus since World War I.
The NYSE successfully tested its operating systems Saturday and Sunday. Top Wall Street execs stressed that a dysfunctional opening for the world’s largest stock market would be another dreadful blow to U.S. and international morale. Emails circulated urging patriotic Americans to buy stocks at the opening and forecasters don’t discount a surprise first day uptick.
Yet most see shares drooping as investors ponder the possibility of U.S. retaliatory strikes and lagging consumer confidence. They’re also considering lower interest rates and a potential economic boost from a “war” economy — since U.S. officials are calling this war.
Foreign markets, equally confused, plunged then recovered last week, only to be spooked after the militant Islamic Taliban government in Afghanistan vowed to seek revenge if the U.S. attacked the country, which is believed to shelter the possible instigator of the attacks, the Saudi-born Osama bin Laden.
Stocks in Tokyo and Hong Kong opened sharply lower on Monday after steep losses in European shares dampened overall sentiment. The dollar wavered against the yen, trading at around 117.10 against the yen in late morning, its lowest point in nearly seven months. The pan-European FTSE Eurotop 300 index dropped 5.17% on Friday and the DJ Euro Stox 50 sank 6.15%. In France, Vivendi Universal sank 12% and in Australia, News Corp. was off 1.12%.
Twists and turns
“People will be changing their minds a lot. There will be a lot of different twists and turns,” said Michael Russell, an advertising analyst at Morgan Stanley Dean Witter. The open, he and others agree, will be crucial in setting the tone of financial markets in upcoming weeks and months.
Wall Streeters are hoping for a tempered response. Said Russell: “This is not a financial tragedy; it’s a human tragedy.”