US stock markets fell sharply on Monday after New York police officers and firefighters rang the opening bell, a sound that hasn't been heard since last Tuesday's terrorist attacks.
Britain's leading stocks were expected to open lower on Tuesday after the drop in the US markets, although a cut in European interest rates late on Monday was expected to limit losses.
Financial bookmakers predicted the FTSE 100 would open 50 to 60 points down at about 4,850, clipping back some of Monday's 143-point rally. The Dow extended its fall after the London close.
At the closing bell, the Dow Jones industrial average and Nasdaq were down about 7 percent, which analysts noted was normal considering historical reactions to catastrophe and given that international markets have fallen anywhere from 5 percent to 10 percent since the attack.
The Dow dropped 684.81, or 7.1 percent, to 8,920.70. While the decline is the largest point drop ever for the index, in percentage terms the worst day was 19 October, 1987, when it plunged 22 percent.
The tech-heavy Nasdaq index slumped 115.75, or 6.8 percent, to 1,579.55. The Nasdaq last traded below 1,600 in October 1998.
The stock markets had their longest closure since World War I, when the New York Stock Exchange was shut down from July through mid-December of 1914.
The markets closed after Tuesday's terrorist attacks on the World Trade Center, which demolished New York's financial district, and on the Pentagon in Washington, DC. Over the weekend, the New York Stock Exchange and Nasdaq said their systems passed their tests, and New York Mayor Rudolph Giuliani said mass transit into the financial district was ready to go.
Despite an initial decline, many market watchers had expected the markets to stabilise. In a flurry of research notes, analysts told clients to buy if the Dow fell more than 10 percent. In addition, the Securities and Exchange Commission relaxed rules on corporate stock buybacks, and the Federal Reserve pumped money into the economy to ensure market liquidity.
Lehman Brothers strategist Jeffrey Applegate said the terrorist attacks would surely push the US economy into a recession and hurt the corporate profit picture, but he added that "the vicious nature of the attack has prompted a vigorous monetary and fiscal policy response" that could save the economy.
John Powers, managing director, Robertson Stephens
Indeed, the Federal Reserve cut interest rates by 50 basis points Monday morning and vowed to continue to lower rates to boost spending. Most analysts expected the Fed to cut rates again soon.
"With the economy in recession and an escalating political and military campaign barely begun, the central bank will now ease aggressively," Applegate said. "The central bank will be especially alert to take action to underpin consumer confidence, which was already fragile."
The opening of the market on Monday was an important psychological hurdle for the United States as investors, traders and the luminaries at the NYSE looked for a sign that the economy won't be derailed by terrorism.
Simply put, buying stocks is now a way to be patriotic.
Many tech companies announced stock buybacks Monday. Cisco Systems, BEA Systems, Vignette, 3Com, E*Trade, Solectron and Intel joined a host of companies outside the tech sector in announcing or expanding buybacks.
"We have tremendous confidence in the financial systems of our country, in our industry, and in our market-leading position both today and into the future," said John Chambers, chief executive of Cisco.
Those buybacks were possible because the SEC stepped in with special measures to make buying stocks easier. Public companies are now allowed to repurchase their own securities without meeting the usual strict volume and timing restrictions. Companies are normally not allowed to buy their own stock in the first and last 30 minutes of trading. Public companies can also now repurchase their shares without adverse accounting consequences.
The SEC also changed some accounting regulations. This is the first time the SEC has used its emergency powers to ease regulations.
Although corporate buybacks are likely to have a big impact on the market, individual investors also want to chip in. In email chains across the country, investors urged each other to buy shares of US companies.
"A way we could all participate in making sure the terrorists' objectives are not met would be to do what we can to minimise the economic impact of what has happened," said John Grover, an individual investor. "One way would be for each of us to place a buy order for $1,000 (£700) on the stock market on Monday. No sell orders."
Short selling, the practice of profiting by betting a stock will fall, was also frowned upon Monday. Although market officials didn't restrict short selling, the peer pressure against shorting was immense.
"To profit from this tragic event would only reward terror, and terror cannot be rewarded," Anthony Elgindy, of Pacific Equity, said in a research note. "Do not engage in short selling of the airlines involved. Do not short REITs (real estate investment trusts) involved in New York real estate, and do not short the US dollar."
Although the efforts to stabilise the markets were commendable, many analysts noted that the stock markets could grow weaker once trading returns to normal. After all, the economic picture remains weak, and corporate profits are going to get worse, especially for companies tied to the insurance and airline industries.
In addition, tech companies are also likely to stumble since spending has come to a halt in the pivotal weeks before the end of the third quarter. "Recent events could cause IT (information technology) spending push-outs over the next two to three months," said Scott Preston, an analyst at Research Capital.
Other analysts agreed. "Earnings expectations for the balance of this year and next are likely too high," said BMO Nesbitt Burns analyst Mike Miller.
The big picture painted by analysts over the past few days is that the economy is going to face a tug of war. Consumer confidence, which was the one pillar of the economy, is likely to slip as people decide to spend less on air travel, vacations and goods. Before the World Trade Center tragedy, consumers were already beginning to worry about an increasing number of layoffs.
That spending slump, however, may be offset by an increase in capital spending as financial services firms rebuild their telecommunications and tech infrastructure. The government is also likely to boost spending on defence and efforts to thwart terrorism.
Tech stocks fell along with the broader markets. Shares of online travel firms sank along with the airlines, as investors feared sharp cutbacks in travel. Priceline lost $1.99 at $3.01, or 39 percent, Travelocity fell $9.46 to $12.56, and Expedia was off $12.25 to $24, or 33 percent.
Not everyone was suffering, however. Nokia, the world's largest maker of cell phones, gained $1.69 at $15.44 after the company reaffirmed previously issued third-quarter earnings guidance. But it did say that revenue in the third quarter would be lower than previously expected, down about 5 percent from the year-ago quarter.
Intel slipped $2.48 to $23.59, and Cisco fell 47 cents at $14. The CNET Tech indexes also suffered heavy losses, with only networking, storage, wireless and telecom equipment holding up relative to other areas. Those slices of the tech sector are expected to benefit from increased government and corporate infrastructure spending.
Despite the short-term turbulence, analysts across the board urged investors to take a long-term view.
Those who sold stocks based on a specific event such as a war usually paid a steep price down the line.
Historical evidence has shown it doesn't pay to sell after a catastrophic event. After the Cuban missile crisis the Dow took a brief dip, falling from 615 to 550 in October, but it then swung higher, reaching 650 by December. The other most recent disaster with a big market impact was the assassination of President John F. Kennedy in November 1963. The Dow plunged 20 points just after the event, but when the markets reopened it bounded up from 712 in November to 825 by April 1964.
"Without a long-term investment strategy, these horrific acts and the prospects of recession in the economy may lead investors to be swayed into making imprudent and costly mistakes," BMO's Miller said.
The following tech companies announced share buybacks after regulators eased rules in an effort to stabilise the stock market.
See techTrader for the latest financial news in the high-tech sector. See the Business News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum Let the editors know what you think in the Mailroom. And read other letters.