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CNN Sunday Morning

Why Did Last Week's Stock Market Sell-Off Take Place?

Aired September 23, 2001 - 18:17   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: In the U.S. economy, nothing good to say about the stock market last week. The Dow fell better than 1,300 points in five days of trading. CNN's Alan Chernoff with us this morning for some possible answers.

It was rough last week, was it not?

ALAN CHERNOFF, CNN CORRESPONDENT: Very difficult week, no question about it, and in fact that Dow lost more than 14 percent, the worst single week we've had since the Depression. So, certainly, there's a tremendous amount of uncertainty on Wall Street right now.

HEMMER: Markets don't like uncertainty, do they Alan?

CHERNOFF: Not at all. That is one thing that Wall Street has never been very good dealing with. And right now, we simply don't know what's going to be happening to corporate profits, what's going to be happening with the American consumer.

We know that the week of the attacks, basically, that was a dead week for the economy; people did not feel like going to the stores, like buying a new sofa, a new car, even closing on a new home. Nobody felt like doing any of that. The key question now is how quickly will the American consumer bounce back. And the other key question, what are corporations going to be doing? They had been holding back on their spending for quite some time, and now they seem to be pulling in yet again.

HEMMER: You talk about consumers go out and spending; so many politicians across the country urging Americans to continue their buying habits. Easier said than done in many cases.

Curious to know this, when the market catches its breath over the weekend, on Saturdays and Sundays, analysts sit down, they look at what they have and they look at what's coming up next. Monday morning it's back to business; what are you hearing at this point?

CHERNOFF: Well, one important magazine, "Barron's" magazine, has on it's front cover saying that it's time to buy stock. That stocks are undervalued, like 17 percent. Very patriotic. The problem with that analysis, though, saying that stocks are undervalued, the S&P 500 by 17 percent, is that it's based on earnings estimates for the Standard and Poor's 500. But the truth is, nobody really knows right now what's going to be happening to corporate profits down the road, and that's because we don't know what consumers are going to do. We don't know exactly what corporations are going to do. It is an unprecedented time.

HEMMER: And the layoffs last week, especially hard hit in the airlines sector; what's likely to be the ripple effect? Is it immediate, or is it something that settles in two or three months from now?

CHERNOFF: The effect can be quite immediate, because Americans see what's happening, in terms of the layoffs, and that makes them a little more scared, can effect their consumer confidence. And so if they don't feel that confident, they won't be spending.

The truth is, probably the most patriotic thing that people can do for the economy is actually go out and shop, believe it or not. That will give a great boost to the country. If we see a quick rebound, then that would certainly help Wall Street quite a bit.

HEMMER: Let me underscore the word amazing, because these are amazing times, and you used the word unprecedented. Indeed. We'll see you tomorrow morning, 9:30 AM, again, Monday morning, for the opening on Wall Street. Alan, thanks.

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