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Friday, 14 April, 2000, 23:48 GMT 00:48 UK
A crash or a 'correction'?
Chicago trader
It was a traumatic day on American markets
By BBC News Online's Alex Hunt

The facts are staggering. In one day, at a conservative estimate, $1,000bn was wiped off the value of American companies.

Taking the Nasdaq market on its own, the combined value of the companies listed on it has fallen by $2,250bn in just five weeks.


Dow's worst days (percentage falls):
19/10/87: 22.6%
28/10/29: 12.8%
29/10/29: 11.7%
Despite that scale of loss, the falls seen on 14 April, 2000, do not stand comparison with the havoc on the last century's blackest days in 1929 or October 1987.

But this time round there are millions more people, in the US, Europe and Asia, who have their savings or pensions tied up in shares.


Dow Jones worst points falls:
14/04/00: 616
27/10/97: 554.2
31/08/97: 512
The impact of the 35% fall on the Nasdaq over the past five weeks is being felt via tumbling tech and internet stocks around the world.

Those who have joined the mass market internet flotations such as Lastminute.com in the UK, or World Online in Holland, have already learned the hard way that there is no such thing as a sure bet.

Most of those people will have known that they were partaking in a gold rush, fuelling a bubble in prices.
Nasdaq's worst days
19/10/87: 11.3%
14/04/00: 9.75%
20/10/87: 9%
Of the 900,000 British people who applied for shares in Lastminute.com, there can not have been many who, hand on heart, thought it deserved a 500m valuation.

They were much more likely swayed by the thought that its share price would rise after the float, so they would get their allocation and then sell them to make a quick buck.

The thing with so many internet stocks has been that their valuations are based almost entirely on hope of days of plenty ahead.

From November last year to March there was unbridled confidence in the prospects of these companies' share price prospects, if not in the companies themselves.

Rebound to come?

Many saw stratospheric increases, with the Nasdaq itself doubling in a matter of a few months.

There have been repeated warnings that a fall was to come, notably from America's Federal Reserve chief Alan Greenspan who has long been trying to let a bit of air out of the bubble.

He has been concerned about the rising stock markets stoking, via the increased wealth of individuals in the US, consumer spending and inflation.

What he does not want to see however, is a crash. More just the froth blown off.

So can $2,250bn be described as froth?

The Nasdaq may have lost a third of its value, but it is still considerably higher than it was a year ago. It is now back to its levels of October.

The Dow Jones Industrial Average, which is home to established companies with longer track records, is down on the start of the year, but is still higher than its lows of this year.

Analysts were agreed on Friday night that what we have seen in the past few days was a necessary correction, not a crash.

Stuart Thomson, analyst at Sutherlands, said: "Let's not get carried away. If all we are doing in the tech market is getting back to last October's levels it is hardly a collapse, or indeed a bear market, it is a correction."

There was a similar view from Bear Stearns' David Malpass: "You can call it a stiff correction if you like.

"But I remember in 1987, people were worried about the functioning of the financial system and the banking system. But not this time.

"People are worrying about what the proper values should be."

With the selling accelerating towards the end of Friday's session it seems that those values are set to be tested further on Monday.

As to whether the impact of this week's falls turn out to be greater, an answer will not be known for a much longer time.

It is possible that consumer confidence in the US will drop as the vast array of amateur traders' share portfolios fall in value.

If that were to happen, it would hit the consumer spending spree which has helped power the US to its record breaking period of growth.

On the other hand - after a long weekend studying how cheap all their favourite tech stocks have now become - Monday could yet see the start of a fresh upwards spurt in the volatile world of technology stocks.

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See also:

13 Apr 00 | Business
$1,000bn wiped off US stocks
14 Apr 00 | Business
Has the bubble burst?
18 Oct 99 | The Economy
Greenspan warns of stock market fall
05 Jan 00 | Business
Q&A: Roller coaster shares
22 Dec 99 | Business
Shares: the century's best punt
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