Even though the markets recovered by the end of the day, traders and investors were shellshocked by the extraordinary moves. Trading ranges of 10 and 15 points were commonplace among even established companies like American Express, Intel, General Electric and Cisco Systems. Technology stocks have dominated investors' psyches in recent years and have been responsible for titanic gains among those buyers willing to suspend their disbelief about what the future may hold for these companies. As a result, investors bid up the prices of both untested companies with no sign of profits and established companies with enviable earnings growth to levels that were never seen before. Our view is that part of the excesses have been corrected, but not all of them.
Many strategists think yesterday's mood shift among investors has staying power.
At first, when stocks go down, you have complacency among investors. The upheaval in the market yesterday acted to level out some of the peaks and valleys seen in the main market gauges this year. The Nasdaq, which had been up 28 percent at its March 10 peak, is now up 1.96 percent on the year after closing yesterday at 4,148.89, down 74.79 points. The Dow, which had lost 14.8 percent in early March, is now down only 2.89 percent this year. Brokers said that yesterday's selloff accelerated when calls for additional money went out from brokerage firms to their customers who had borrowed to buy shares.