In the twilight of last week's horrific close, Merrill Lynch investment analyst Willis Greco put vodka in his ginger ale, loosened his tie and picked up the phone to confide, "Wipe out."
As breathtaking as the rise of the Nasdaq Composite was from mid-October to mid-March, so too was its downfall. The technology-weighted index lurched sickeningly and well into bear market territory last week, plummeting a total of 1,125 points before catching the rung Friday at 3,321.27. Even veteran investors were shocked at the ruthlessness of the sell-off as the Nasdaq suffered its largest point decline and second-largest percentage drop in its history.
"A lot of these new investors have never been through this kind of experience," Goldman Sachs investment analyst Jason Glover said. "It's testing everything they thought they learned in business school."
Led by Microsoft, Intel, Oracle, Cisco and Qualcomm, tech leaders fell in near unanimity. All technology sectors were in the red, with computer software, chip and Internet issues seeing the largest setbacks.
Furthering the pain, the tech devastation was accompanied by a steep decline in Old Economy blue chips. The Dow Jones Industrial Average similarly broke records by falling 617.80 points to 10,305.77, its worst-ever point loss. Retail and consumer stocks were sharply lower, as were paper and manufacturing shares.
Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co., noted in the final hour of trading Friday that over $2 trillion of wealth had been eliminated.
"The feeling of dread is definitely prevalent. The question is, how do you rebuild?" Prudential Securities market analyst Bryan Piskorowski told Ragingbull.com.
The stock market's capitulation jarred many observers. Some of them pointed to the prelude of new investors' unwillingness these days to buy and hold stocks even overnight, contributing to the modern market's volatility.
In the past few weeks, the Dow and Nasdaq had taken turns rising and falling, and large-cap technology stocks fared decently despite the turbulence.
But Friday the Labor Department reported that the Consumer Price Index had suddenly shot up 0.7 percent in March, its biggest increase since last April. The unexpected news seemed an indication that the Federal Reserve would subsequently tend towards more aggressive anti-inflationary policy, specifically by reducing interest rates. Investors, rather than moving assets within the equity market, rotated assets out of stocks entirely.
"In a typical mixed market, investors can put their money into whatever is hot and the market as a whole stays relatively afloat," Commerce Prof. Robert Kemp said. "The difference this time is that the Fed is going to cool off everything."
"Rather than suffer the deluge, we bolted for the door, and a huge panic sell-off ensued," Greco said. "Taken alone, the plunge is frightening, but what's really scary is how far every sector and index fell."
Sifting through the detritus of last week's debacle, the goal is to determine where the market is headed now. Some financial planners think there is some selective buying in the wreckage, or at least, a serious re-evaluation of certain kinds of tech-heavy portfolios. Most experts, including Kemp, recommended staying put until the storm passes, advocating their faith that with time the market tends to correct itself. None recommended further selling.
"For the past year or more, the pattern has been the same," Stephen D. Slifer, chief U.S. economist for Lehman Brothers' told The Washington Post. "The markets begin to worry about the unbelievably rapid pace of economic activity and what the Fed might do to slow it down. Then they learn that productivity growth has accelerated further, and suddenly estimates of [how fast the economy can safely grow] get ramped upwards."
The mood was overcast at the New York Stock Exchange. According to TheStreet.com, one trader from SLL Securities said sentiment on Friday's floor was so negative that any chance of imminent reversal is slim.
Nevertheless, other NYSE workers appear to be keeping a stiff upper lip. "It was pretty dramatic, but it's still orderly," said Seaport Securities trader Ted Weisberg of the sell-off. "I've been trading on this floor for over 30 years, and [October] 1987 felt much more traumatic."
"It was a painful but healthy purging, and it was necessary," U.S. Bancorp Piper Jaffray chief market strategist Edward Nicoski said. "Now we'll return to a sanity where investors will be more careful in their research before buying value companies, not four-lettered, illiquid symbols."
"It's possible that the pain may be near an end, yet the 'feel good' time is still some time off," said Frank Gretz, Shields & Co chief market strategist told CBS Marketwatch. "It may be that prices are near not going down anymore, but no one's sure when they're going to go up - at least in any important way. And that, for many, is what hurts."
Michael Holland, president of Holland & Co., had a rosier outlook. Holland was able to point out that the price plunge came amid the backdrop of a strong economy, and good first-quarter earnings reports could bode well for all concerned.
"We'll be okay," Holland said.
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