Stock markets' prospects for a quick recovery uncertain at best after attacks

By LISA SINGHANIA
AP Business Writer

NEW YORK – A year and a half ago, the markets seemed invincible at their lofty heights.

The Dow Jones industrials had soared above 11,700 points and the Nasdaq composite index hovered near 5,000. Now even more modest targets of 10,000 on the Dow and 2,000 on the Nasdaq are questionable in the short term, say experts who study how the markets move.

Five analysts and former Securities and Exchange Commission Chairman Arthur Levitt recently discussed the markets with The Associated Press.

Here's what they had to say:

– Ralph Acampora, director of technical research, Prudential Securities:

"We might see 10,000 over the next month, but the big question is whether we've seen the bottom. We're at war, and that's a big deal. ... Would we have had as dramatic a drop without the terrorist attacks? No, but we were already rolling over. The market was saying there was going to be a crisis of confidence. We started to see signs of potential recession before this happened. And what we got with terrorists is a guaranteed recession.

"I don't even want to venture a guess about when we're going to hit 12,000 or the Dow's highs again because of the uncertainty.

"The recovery is going to be longer and slower. I think sometime next year, we're going to make the final bottom."

– Al Goldman, chief market strategist, A.G. Edwards & Sons Inc.:

"The market is as deeply oversold as I've seen in my 40 years. But I can't tell you when we're going to go over 10,000. ... Before Sept. 11, we were seeing a lot of economic indicators saying that the economy was starting to bottom. ... Now we're going to be in a recession in the third and fourth quarter, but it was created by an aberration. I think the market is about 20 percent undervalued here – I'm using the Dow. If we got up 20 percent we'd be at 10,560 ... and I'm looking for that this year. But I certainly would not guess that. Do I think we'll be there by the middle of next year? Maybe. But the market always goes to extremes and I'd have to have my head examined to make any more predictions beyond that.

"For the Nasdaq to get back to 2,000 this year would be a pretty hefty move. It could happen, but do I project it? No. And of course it's going to be a long time before it's up around 5,000 again and that will be very difficult because a lot of companies that helped the Nasdaq get high – the dot-commers – are all history."

– Arthur Levitt, former Securities and Exchange Commission chairman:

"What we're seeing today is overdone pessimism rather than irrational exuberance. (Investors should) look at the market intellectually rather than emotionally and be patient. I don't try to predict the direction of the market, where it's going to go and when it's going to go. But no, I'm not concerned. I believe the market has acted very well."

– Jeffrey Applegate, chief investment strategist at Lehman Brothers:

"We changed our predictions for the Dow after the terrorist attack. For 2002, we now have a target of 10,000 for the Dow; before we were expecting 11,500. I don't predict the Nasdaq.

"We did that because the attacks increased risk, making the equity risk premium higher. The last time this happened was around the Gulf War in 1990, although it didn't increase risk permanently and stocks eventually went up. That may happen here, but until we have evidence of the success of the anti-terrorist campaign, of which I'm absolutely certain we'll have eventually, I think the equity risk premium will be higher. We're also in a recession so profits are going to be lower.

"Our projections for the Dow are conservative. I think 11,000 would be a stretch for next year. It's more likely that you could maybe get back to that number in 2003. We need to have a very good recovery and the anti-terrorist campaign has to be successful. Virtually everything has to go right."

– Hugh Johnson, chief investment officer at First Albany Corp.:

"I certainly wouldn't be surprised to see the Dow at 10,000 this year and that's because the stock market ... is as undervalued as I've seen it in my work.

"What needs to happen is investors need to collectively ignore or look beyond the stream of upcoming economic and earnings numbers that will be truly dismal. ... They have to have reached the point where they believe that the stimulus provided by the Federal Reserve and federal government will lead to a recovery in the economy and earnings in 2002.

"But if there's another shock that's anywhere near what we saw Sept. 11, the market will trade down and trade down sharply. At the same time, shifting from a peacetime to wartime footing is ordinarily good news for stocks and the economy. Historically that shift has led to increased spending on defense, a stronger economy and stronger earnings, particularly for defense companies."

– A. Marshall Acuff Jr., retired equity strategist for Salomon Smith Barney:

"I think it's going to be a challenge to get back to 10,000 this year. The market is still generally high, relative to the earnings outlooks for next year. But I would have said this if we had talked four weeks ago. ... I think all we're going to see from now to year-end is a rally from oversold levels.

"There's the possibility the Dow is going to reach 11,000 to 12,000 in late 2002, and you might also see 2,000 on the Nasdaq by then.

"The Nasdaq is probably still going to lag ... largely because of its makeup. To the extent the market does better, it's going to be in a diverse set of stocks and the Nasdaq is pretty much dominated by technology and I think tech is still going to have a tough time because I don't think capital spending is going to return to what it was until 2004."

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