Stock prices down, but pros say not out

By DIAN VUJOVICH
Special to the Palm Beach Daily News

There's no pussyfooting around it any longer: It's a high-speed global marketplace investors are playing in. With that comes the good, the bad, the ugly, the shocking and the opportunity.

There's been a lot of finger pointing regarding Thursday's mid-afternoon nearly 1,000-point drop in the Dow Jones Industrial Average. Shocking as that fall may have been, Friday represented the same thing every other trading day on Wall Street does -- a new day.

While no one knows yet the precise reason for the Dow's record intraday fall, a mistaken trade entry -- resulting in a domino-like scenario that triggered computerized trading programs to sell, sell, sell -- is one possibility. People make mistakes in the flesh and when writing, designing or creating computerized buying and selling programs.

The stock many say began the calamity Thursday was Procter & Gamble, one of America's core consumer stocks, a brand name known worldwide with products sold around the globe and one of the 30 stocks that make up the Dow Jones Industrial Average. Shares of Procter & Gamble fell 37 percent during the worst of the afternoon's market madness and have been said to be responsible for 172 points of the Dow's 998.5-point fall.

By the time the closing bell rang, the Dow was off 348 points, closing at 10,520.32, off 3.2 percent.

Then came Friday. Early reports were that the market was going to open up. They were wrong. While the Dow Jones Industrial Average was in plus-territory for a little while, it ended Friday down another 140 points, or 1.3 percent, to close at 10,380.

As for oil, it's slightly over $75 a barrel, but running well over $3 a gallon locally; gold is now at $1,210 and the euro $1.27. (That makes the exchange rate for anyone traveling to Europe more attractive today than it has been in over a year. The catch for those traveling is finding a carrier whose engines can't be clogged by volcanic ash.)

But that's only part of the story. Because it's a global economy, political, social and economic events around the world affect markets everywhere. On Friday, London's FTSE closed down 2.6 percent, Germany's DAX was off 3.27 percent, France's CAC 40 was down 4.5 percent and Japan's Nikkei 225 was down 3.1 percent.

Dr. Stephen Wood, chief market strategist for Russell Investments, was on the floor of the NYSE Thursday afternoon.

"It was an interesting place. You know when you've got kids and they're quiet, you know something is going on? That's kind of my analogy. It wasn't silent, but the mood was quiet."

Wood acknowledges that while the reason for the Dow drop is still unknown, he believes it "was clearly a breakdown in computer software." Behind that error, however, loomed something much larger.

"More importantly, this glitch happened on a canvas backdrop of increasing uncertainly and risk in the world. Greece, China, the jobless nature of [our] recovery ... so tinder was already dry."

Given circumstances such as that, volatility naturally follows.

"There's a lot of volatility going on as measured by the VIX [Chicago Board Options Exchange Volatility] index," said Michael J. Dixon, director of planning and wealth management at Carl Domino Inc.

"There's been a major move of about 30 percent in volatility and that's being caused by uncertainty in Europe. And [that] relates to the economic climate in countries like Greece, Portugal and even concerns over the election in the U.K."

So what are investors to do given the market's recent volatility and global economic global concerns and conditions?

Wood said he is optimistic. While investors aren't going to see the kind of returns they did in 2006, and the shape of the recovery is more like a square root shape than a V, he believes things are going to be OK -- provided that investors expect lower returns.

Part of his job is to help clients understand short-term volatility because, "what you want to do is maximize your probabilities," he said.

By maximizing long-term probabilities, he said, investors tend to do better.

Dixon also is optimistic about the future of the market.

"There are a lot of positives going on. The jobs report for April showed that of the 290,000 jobs added, 240,000 were from the private sector and this is the fourth month in a row that we've added jobs. That's a positive for the United States' economy. I think we've gotten through a lot of our credit problems and our GNP [Gross National Product] is increasing, so our country is pretty strong. And I'm still very bullish."

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