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Individual Investors Give Wall Street a Boost _ With Common Sense

March 11, 1996

NEW YORK (AP) _ While Wall Street’s professional traders were behind the stock market’s furious sell-off Friday, individuals like Martha Paluga helped jolt it back to life.

Paluga, a bakery owner from Chicago, stopped by a Fidelity Investments office in Manhattan during a business trip Monday as the Dow Jones industrial average was on its way to a powerful 110.55 point advance, the third-biggest point gain in its history.

The business owner had heard over the weekend about the Dow’s week-ending 171.24 point plunge and decided to put some money into the market.

``I want to take advantage of the fact that the market was down,″ Paluga, 34, said as she waited to buy a few mutual funds. ``Wall Street is always going up and down.″

While individuals alone can’t move the market, they can give it a good nudge. Their optimism Monday led the Dow average, the stock market’s most widely followed index, 2 percent higher to close at 5,581.00, an impressive rebound after falling 3 percent on Friday.

Treasury bond prices, which posted their worst performance in almost 20 years Friday, also bounced back as the new week began.

Kicking off all the trouble last week was a government report showing the nation created 705,000 jobs in February, the biggest monthly gain since 1983. Traders worried the news would prompt the Federal Reserve to put off cutting interest rates in the near future.

Lower rates help boost corporate profits and make stocks and bonds more attractive than other interest-bearing investments, like savings accounts.

While the pros on Wall Street sold on the news Friday, individuals like Russell Johnson, a 72-year-old concert hall and opera house designer, didn’t get the details until they read the next morning’s newspaper.

``Saturday morning, I felt pretty sure today would be a good day,″ said Johnson, also at the Fidelity Investments office in Manhattan.

Johnson didn’t buy, but he didn’t sell either. The day’s improvement gave him the confidence to leave his money invested in mutual funds and bonds, though he kept a close watch on his portfolio.

The ability of individual investors to made such prescient investment decisions at first blush seems unusual. After all, Wall Street’s pros have at their disposal mountains of data, an army of researchers and the best technology money can buy.

It has, however, become something of an embarrassing fact.

``The pros are taking courage from the really smart guys _ the small investors,″ said Peter J. Canelo, chief investment strategist at NatWest Securities, a brokerage firm.

``Ever since ’87, the small investors have been right about the market,″ he continued. ``The pros have sold at the bottom and the individuals have been strong buyers in most major market sell-offs.″

The stock market’s plunge Friday was not altogether surprising. The Dow average alone surged more than 33 percent last year and was up 10 percent this year before the violent sell-off.

Predictions of a pullback have been rampant.

Many Wall Street analysts worked over the weekend to discern whether the pullback was a one-time blip or the beginning of a ``correction,″ a loosely defined term meaning a retreat in prices that allows an overall advance to continue.

Wall Street generally defines a correction as a decline in stock prices of 10 percent or so. The Dow’s drop Friday to 5,470.45, it’s third-worst point decline in history, was nowhere near such a plunge.

The sharp improvement Monday seemed to dash the likelihood that the decline was anything like the start of a correction.

``The individual did not lose faith in the economy,″ said Muriel Siebert, president of the discount brokerage firm Muriel Siebert & Co. ``When the economy is strong, the individuals look at this differently.″

In other words, individual investors took the job-growth report that triggered the Friday plunge as good news, rather than turning it on its head to see doom in the form of higher interest rates.

A further bit of positive economic news Monday, a government report showing new home sales jumped an unexpected 4.2 percent in January, knocked the Dow as far down as 25 points early in the session. But optimism won out and the Dow quickly renewed its climb.

At Siebert’s brokerage, 60 percent of the customer orders executed were ``buy″ orders. A spokesman at Fidelity Investments’ Boston headquarters said there was no unusual selling of mutual funds and its brokerages saw more buying than selling.

With all that information provided by ordinary Americans, it should be no surprise that the pros on Wall Street soon jumped on the bandwagon and became buyers of stocks and bonds themselves.

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