For a few precious hours last Tuesday, you could actually tell truth from fiction. All those fish stories you'd heard in recent months, the ones about friends and office pals with multiple thousands invested in the likes of Qualcomm and JDS Uniphase--were they true? Were real people actually soaring with the highflyers the way you'd dreamed of doing yourself?
Here's your answer: if you saw those folks anywhere near lunchtime and they weren't sweating bullets, forget everything they've ever said. They're not players.
It's that simple. On a day that the dot bombs and other tech dears descended into a panicky free fall, no one with a sizable stake could help fretting that the bubble had burst. At the lows, the decline was in some ways worse than the 1987 crash. Yes. The Crash. Doesn't register? Think. Mom or Dad may have mentioned it.
On that dark day 13 years ago, the NASDAQ, then just a funny series of letters to most people, fell all of 11.4%. But on Tuesday the NASDAQ, now our most closely watched market gauge, was down 13.6% on extraordinary volume and with hours yet to trade. And that was on top of a chilling drop the day before, on top of a steady erosion over the previous few weeks that in all took the index down a stunning 28.9% from the March 10 high to the April 4 low--wiping out an incredible $1.1 trillion of value.
Then everything changed. Or should I say nothing changed? Investors flooded into the market to buy the dip, and the NASDAQ roared back to end the day with only modest losses, then skipped through the rest of the week with little grief. Indeed, tech bellwethers, including Oracle and Intel, finished the week with gains.
Yet something was very different. Even if just for a short while, the element of risk, as inseparable from the market as it was invisible during a long run-up, had reimposed itself on investor psychology in a cathartic half a day of pain. "All those people who somehow figure that Wall Street owes them money found out that it doesn't," says Laszlo Birinyi, CEO of market-research firm Birinyi Associates in Westport, Conn. "The market doesn't work like that."
So just how does it work? Well, let's start with a simple notion: news matters. When Alan Greenspan raises interest rates, as he has been doing for nearly a year, interest-paying investments like bonds and even scorned bank CDs siphon dollars from the stock market--and stocks become less attractive. When the government wins big in a court case that could bust up one of the most valuable companies in the most valuable industry in the world, as happened in the Microsoft trial last week, it breeds uncertainty--and stocks become less attractive. When the market's most credible bull sours on the market, no matter how faintly, as Abby Joseph Cohen at Goldman Sachs did recently, some people are bound to sell.