Wall Street's two-week-long crumbling has left Southern California brokers and small investors wary. Many say that while the market may no longer be overpriced, they are reluctant to resume buying shares immediately.
"It's a world of anxiety out there . . . . A decorator called me and asked what was going on and what the market was going to do to his business," said Frank E. Baxter, president and chief executive of Jefferies & Co., a Los Angeles-based brokerage. The firm expects the market to fall further this morning before stabilizing, Baxter said.
Robert C. Crary, a Los Angeles retail broker for Amdec Securities, said his clients had accumulated large cash reserves by selling off stocks in recent months, but they won't be racing back into the market. "We'll wait until the dust settles."
The Dow is unlikely to fall more than another 100 points before turning back upward, he said, while cautioning that in recent weeks, "My crystal ball is never very clear because the market is very emotional."
The Dow Jones industrial average, the closely watched stock index of 30 large companies, has now fallen in nine of the last 10 sessions, losing 14.9% of its value since Oct. 2 and 17.5% since its all-time closing high of 2722.42 on Aug. 25.
Stocks on every major U.S. exchange have dropped sharply, with analysts blaming everything from rising interest rates--which give investors a greater incentive to buy bonds instead of shares--to the nation's intractable trade deficits, which threaten to send the dollar into another slide and dry up Japanese investment in the United States. On Sunday, Treasury Secretary James A. Baker III put the blame on House and Senate Democrats' work on a tax increase package for helping the market stumble.
Rising interest rates have made tax-free municipal bonds much more attractive than even suddenly cheaper stocks, said Robert C. Hedrick, a retail broker in the Los Angeles office of Smith Barney, a New York City-based brokerage. "They're cheap relative to where they've been recently, but they're not cheap historically."
The widely traded 30-year Treasury bond was yielding 10.17% at Friday's close, up from as low as 7.47% in March.
So-called blue chip stocks, shares in large companies with solid balance sheets, have done especially badly in the current downturn. Mostly held by institutions, the drubbing they have taken recently may have further hurt their standing with individuals.
"I'm going to watch (the market) as it declines. If it does decline, I'm going to look at the over-the-counter (small company) stocks--that's where I think the next leg of the bull market will come," said James M. Skaggs, a heavy construction machinery operator and self-described "small potatoes stock player" in Riverside.
Skaggs said he sold his blue chip stocks several months ago because annual dividends had fallen to less than 3% of the share price of the average Standard & Poor's 500 company. The S&P index is composed of 500 large companies favored by institutions.
Some Los Angeles brokers were optimistic even after last Friday's free fall on Wall Street. Late Friday afternoon, the market's plunge produced record one-day point drops for both the Dow--down 108.36--and the S&P 500, down 15.38 points.
After closing Friday at 2246.73, the Dow is likely to bottom out at about 2200, possibly during a Monday morning selloff, before stabilizing and eventually heading higher, said Dreux McNairy, a retail broker and senior vice president for investments at Morgan, Olmstead, Kennedy & Gardner, a Los Angeles-based brokerage.
McNairy said he barely touched his buy slips during Friday's trading. "I really don't see any sense in stepping in front of a moving freight train."
Ashana G. Jefferson, a retail broker in Merrill Lynch's Los Angeles office, said she and her clients had agreed that the market had bottomed out, and that now was the time to buy blue chip stocks.
"(For) Monday, I've already selected the stocks I want to buy, and if they start turning upward, then I'll buy," she said Friday afternoon.
A Japanese retail broker in the Los Angeles office of a large Japanese brokerage corporation said Friday evening that his U.S. customers had filed an unusual number of buy orders for Monday morning.
Japanese institutions have already largely withdrawn from U.S. equity markets, and are highly unlikely to return this week, three officials at Japanese brokerages said Friday.
"They're more worried about the exchange rate . . . I don't believe they're coming after any bargains in the U.S. market," the Japanese retail broker said, asking not to be named.
When the U.S. dollar falls, Japanese investments in the United States lose value in yen terms. Japanese investment in U.S. stocks, though possibly limited to $20 billion this year, seems to have been concentrated in blue-chips.
"I'm sure they will wait and see . . . I don't see much investment from the Japanese side, they just want to see (the market) bottom (out and) rebound," said a senior Japanese institutional broker in the Los Angeles office of the same major Japanese brokerage. He asked not to be named. Large Japanese companies began selling their U.S. stocks heavily and converting their funds back to yen in early September, when the Dow tumbled to the 2,600 level, he said.
"I hear from Tokyo that they are very much cautious now. These couple days' movement--they're keeping on the sidelines," said Ken Suzuki, manager of the Los Angeles office of Nikko Securities Co. International, another large Japanese brokerage.