NEW YORK >> Some describe the selling frenzy on Wall Street these past two weeks as capitulation by investors. Pessimism may be
good for marketAssociated Press
Investors aren't just noncommittal when it comes to the stock market, they're disgusted, fed up, analysts say, which is why they sent the Dow industrials down nearly 8 percent and the Nasdaq composite off nearly 12 percent over the past two weeks.
But in the convoluted way Wall Street thinks, that's actually a good thing.
"On the bright side, we are getting to some levels of fairly significant pessimism," said Charles White, portfolio manager for Avatar Associates.
Analysts say the mood of the market must plummet to truly miserable levels to hit bottom and then head higher again.
"Historically, that has been the turning point. Whenever we have had a really bad run as we have been having this year, you don't have the bottom until everyone throws in the towel," said Arthur Hogan, market analyst at Jefferies & Co. "You need to have everyone be bearish."
The notion that investors' foul mood bodes well for the market might be difficult for anyone off Wall Street to understand. But analysts likened it to sellers needing to get the selling out of their systems, to drive stocks low enough to make them want to buy again.
Among reasons for investors to feel glum this past week was yesterday's Labor Department report that the jobless rate rose to 4.9 percent in August -- its highest level in nearly four years -- and that businesses slashed 113,000 jobs.
The Dow finished the week down 343.90, or 3.5 percent, at 9,605.85 after losing 234.99 yesterday. The Nasdaq lost 117.73, or 6.5 percent, to 1,687.70 for the week after falling 17.94 yesterday. The Standard & Poor's 500 index ended the week by falling to its lowest level in nearly three years. The S&P yesterday declined 20.62 to 1,085.78, its weakest finish this year and lowest close since October 1998. For the week, the index lost 47.80, or 4.2 percent.