Week Three on Wall Street: Pacing the Waiting Room

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A trader stands on the floor of the New York Stock Exchange

For every Dell and Cisco, these days, there is a Sun and an AMD, issuing glum earnings outlooks and quietly smothering the newborn tech optimism in its cradle. And the NASDAQ that had posted decent gains Thursday on the it's-gonna-be-OK news from America's bellwether PC producer and router-maker quickly crumbled, shedding its gains dolefully into Friday afternoon. Taken together with job cuts soaring to ten-year highs last month (and that's just the barest taste of the post-disaster economy — the hold at 4.9 percent unemployment for September is the ultimate in lagging indicators) the Dow had no trouble justifying some more erosion of its own.

Then, everybody rallied Friday afternoon on Bush talking about the stimulus package. Which was nice, because it had really been a pretty good week. The Dow had gotten to nearly 9200 since Monday's sub-8800 lows, and was up 14 percent since the low, low bottom set at the end of that awful first week of post-attack trading. Not bad, considering the war hadn't yet started and the economic news was unimproved. The NASDAQ had begun to consider the possibility that blue-chip techs had an excellent chance of bouncing back before too long, and despite the "still historically overpriced" tag that hangs on that sector, perceived bargains were starting to leave the shelves.

Wall Street is still waiting. As long as the corporate news remains mixed, as long as the recession is still here, these markets don't appear to be going anywhere beyond the moderate positioning rallies (and selloffs) we've seen since that Sept. 21 low — they're just pacing the green room, biding their time, making small bets on the near future. Waiting for the Pentagon — for the bombs to drop, the tanks to roll, the hammer to fall — or waiting for the terrorists to strike again. Or at least for Congress to cut a few checks.

The national man-in-the-street mood seems, lately, to have swung a little toward the cocky side — Bin Laden ain't so tough — and perhaps that's why Wall Street's predisposition this week has been to inch up instead of down while it waits for war. But any investor confident enough to buy into this week's tentative surge may want to remember that if Don Rumsfeld and Colin Powell and George W. Bush were as confident, we'd have seen some explosions in Afghanistan by now.

Of course, if Bin Laden were quite the supervillain we've sometimes made him out to be, some may imagine we'd have seen some more explosions in America by now. But the anthrax thing and the Greyhound thing and the Russian plane thing all turned out to be ordinary human catastrophes, red herrings, false alarms — "isolated incidents." (That, incidentally, will be the next cool cultural buzzword for this war, replacing the now-too-creepy "collateral damage.")

What the markets would so desperately like to know is whether Sept. 11 was an "isolated incident" or something they're a little more comfortable working with — part of a trend. If it means defense spending, more spy satellites, less spy satellites, fine. If it means the "CNN effect," or decreased consumer confidence, fine — they can always sell. If it means America's going to kick butt and we can all proudly go back to our consumerist lives and our primed-for-a-V-shape business cycle by summer, even better. They'll rally till all the terrorists are scattered and the world is safe again.

For now, all Wall Street has is Dell and Sun, Cisco and AMD, this gloomy earnings report and that (relatively) sunny one. And US Airways CEO Stephen Wolf now saying his airline may not even need (or want) the loan guarantees — which is just plain hard to believe. The indexes are surfing on forecasts, outlooks, estimates and economic reports that have only just begun to describe the post-Sept. 11 world.

Wall Street doesn't mind the recession so much — they're forward-lookers, and just figuring out where to plant seeds for spring. But the fast-flowering recovery now scheduled for summer 2002 isn't likely to take root until the stock markets say the ground is fertile and safe from the elements — and with all that's still uncertain, contagious optimism is hard to come by.

Don't forget — these markets weren't convinced of this recovery's inevitability before the towers fell. What, exactly, is supposed to guarantee it now — extended unemployment insurance and another $300 rebate check? That's not the stuff of a prompt and glorious boom — that's bread and water.

When it's not watching Washington's trigger finger, Wall Street is waiting for businesses to get confident. Businesses are waiting for consumers to get confident. And consumers are waiting for Wall Street to get confident — and to hear whether they'll be part of the 6 percent unemployment that we should be seeing by the spring. So do you buy this week's rally? I wouldn't. Sell it? Better odds — but market timing from the back of the line is for suckers. The best bet is to do what everybody else is doing, from the Big Board to the Pentagon — wait and see.