Despair grows as markets plunge

NEW YORK — The pain on Wall Street intensified as stocks continued to struggle amid growing signs that mutual fund investors, fed up with losing money, may finally be giving up on the market.

Investors hoping the recent free fall would mark a low point for the ailing stock market instead continue to see stocks fall and the precipitous declines have raised fears that the bear market, which has wiped out $1.9 trillion in shareholder value this month, has more room to run.

"I don't ever recall so much pessimism about the short-term and long-term outlook for stocks," said Ed Yardeni, chief investment strategist at Prudential Securities. Not even encouraging words from President Bush on the economy and his belief that the 28-month bear market has created better values on Wall Street was enough to lift investors' gloomy mood.

Negative investor psychology caused by a slew of corporate scandals at well-known companies such as WorldCom and Enron is what's driving stock prices sharply lower, says Phil Dow, director of equity strategy at RBC Dain Rauscher. "Once such a psychological state is in place, it stays awhile," especially when the market is groping for a bottom, he says.

That might explain why a growing number of mutual fund shareholders, the same group that built a reputation as buy-and-hold investors during the 1990s bull market, are starting to sell their stock funds in attempt to relieve their mental anguish and cut their losses. To put the current selling frenzy in perspective, U.S. stock funds suffered outflows of $18.6 billion the week ended Friday, just shy of the record $19 billion outflow the five-day period ended Sept. 25, 2001, according to estimates by TrimTabs.com, which tracks fund flows.