UGA Professor points to investor uncertainty for market swings

Posted 10:37AM on Friday 26th July 2002 ( 23 years ago )

NEW YORK - After weeks of selling, bruised investors finally had something to cheer about: a 488.95-point gain on the Dow Jones industrial average, its second-biggest point advance ever. But the market found it hard to sustain the gain Thursday. A day after its big advance, the market fluctuated and then fell, with technology stocks suffering the most. Some selling had been expected in a market that cashed in even the smallest of gains during more than nine weeks of declines. Investors' reaction also reflected a new round of accounting questions this time at AOL Time Warner and was a reminder that the issue hasn't been resolved. ''Whenever you start having questions about earnings, about the quality of a company's books, you introduce uncertainty,'' said Marc Lipson, a finance professor at the Terry College of Business at the University of Georgia. ''And that's how you get volatility.'' Indeed, stocks fluctuated for most of the session Thursday before closing lower. The Dow fell 4.98 to 8,186.31, while the Nasdaq composite index tumbled 50.15 to 1,240.08. The Standard & Poor's 500 index lost 4.75, falling to 838.68. Although the Dow and S&P managed to hold on to most of their gains, the Nasdaq lost 80 percent of its advance on renewed concerns about the health of the semiconductor industry. The pressure was intensified by news late Wednesday that the Securities and Exchange Commission was looking into AOL Time Warner's accounting practices. Although no charges have been filed and the company denied any wrongdoing, analysts said that in the aftermath of debacles at Enron Corp., WorldCom Inc. and Adelphia to name a few, just the mere suggestion of impropriety were enough to give investors second thoughts. The market also has a history of pullbacks following big rallies. The Dow soared 324 points on July 5, only to fall so sharply that within two weeks the average was below 8,000 for the first time in nearly four years. The Nasdaq and S&P had fallen to levels last seen five years ago. Still, there is some optimism. Lipson, the University of Georgia professor, said some investors will buy because the prices of some stocks have dropped so much they no longer seem as risky. Earnings also appear to be improving a further reassurance to investors that the stocks they buy now should eventually pay off. Still, any improvement is likely to come gradually. ''There are probably going to be some people selling Thursday because they feel the need to get out, and trading will be volatile,'' Lipson said. ''But I think other people are starting to look at some companies and say they have good prospects and the prices are low.''

http://accesswdun.com/article/2002/7/192033