By Nelson D. Schwartz and Rachel Abrams, nytimes.com
Even a pep talk from the chief executive of Apple, the single biggest American company by market value, did little to soothe investors on Monday.
As the Chinese stock market slump ignited fear around the world, Apple’s chief, Timothy D. Cook, broadcast to Wall Street that the tech giant’s business in China was just fine, thank you. His corporate cheerleading wasn’t just unusual because of its message, but also because of his delivery method, an email to a financial television host.
It worked — for a time. But by the end of the day, Apple and the rest of the market had yielded to the gravitational pull of investor fear.
While Apple’s 2.5 percent loss was milder than the overall market’s plunge, Mr. Cook is fighting the same forces as ordinary investors and financial professionals. On some days, market psychology — and the tendency for panicked sell-offs to feed on themselves — counts for more than long-term fundamentals like growing iPhone sales in China or strong earnings results.
Investors are now trying to separate the fact from the fear, as they digest how China’s problems will affect the rest of the world. And the process could make for some messiness in the markets, particularly in the United States, where investors have been lulled into a sense of security by a long bull run in stocks.
By 2 p.m. Monday, Gregory J. Blank, an independent financial adviser based in New York, had already fielded nearly 20 phone calls from anxious investors. He handles assets for about 200 clients, a mixture of younger adults and retirees.
“They see it in the news,” he said. “They get worried. They call.” Mr. Blank said that the older investors were more concerned, since it was harder for them to replenish whatever they had saved up for retirement. But the worst thing to do right now is to panic, he advises them.
One retiree, a former secretary at a global investment bank, was among the concerned callers. “She started the phone call with ‘Should we sell?’” Mr. Blank said. “By the end of the phone call, she said, ‘Well, maybe we should buy.’”
But staying put is not always the best option for everyone — creating the sort of selling pressure that could add to the tumult.
David Enrico, a 31-year-old model from Los Angeles, eyed the market with growing anxiety on Monday. Mr. Enrico and his wife are preparing to buy a home and are concerned about the short-term effects on their savings.
“I just saw this, and I got a little nervous because I don’t want my nest egg, my down payment for the house, to be subject to the market volatility,” he said.
Mr. Enrico emailed Mr. Blank to make sure that he could liquidate his positions immediately if need be, but so far hasn’t pulled the trigger.
“In the short run, market sell-offs are limited by psychology,” said David Kelly, chief global strategist for JPMorgan Funds. “That doesn’t mean it’s not dangerous. The biggest risk here is that we all collectively lose our nerves at the same time.”
“It’s possible that enough of a frenzy will be whipped up that people could hunker down,” he added. “I don’t think it will happen, but that’s the biggest risk.”
Advisers and corporate executives are now trying to assure investors that a slowing Chinese economy isn’t necessarily a big problem for most American companies.
And Mr. Cook’s comments, which were sent to Jim Cramer, host of CNBC’s “Mad Money,” did help Apple weather the worst of Monday’s trading. After opening down more than 10 percent from Friday’s close, Apple’s shares quickly rebounded, helping the Dow Jones industrial average recover somewhat from an early plunge of more than 1,000 points.
“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” Mr. Cook said in the email to Mr. Cramer. “Obviously I can’t predict the future, but our performance so far this quarter is reassuring.”
Like Mr. Cook, many Wall Street seers insist the overall data doesn’t foreshadow an economic slump — or worse.
For starters, Mr. Kelly noted that only about one five-hundredths, or 0.2 percentage point, of gross domestic product in the United States is generated by exports to China. Long-term investors with multiyear time horizons, he cautions, shouldn’t let themselves be gripped by the fear that has overtaken some professional traders.
“Valuations aren’t stretched, and there isn’t a general economic downturn,” he said. “It’s been very tough to trade these markets, but that view applies to a much smaller slice of the population.”
What’s more, China, while an important source of earnings gains for large American companies, isn’t expected to tumble into the kind of outright recession the United States went through from 2008 to 2009. It just may not grow at the 7 percent that Chinese leadership is targeting.
“Even the most pessimistic observers think China will still grow by 4 or 5 percent,” said Kate Warne, investment strategist at Edward Jones, a brokerage firm based in St. Louis. “We’d love to have 4 or 5 percent growth in this country.”
She said that the long, steady rise of the stock market this decade, with relatively few downdrafts, is only adding to the sense of panic now.
“It’s been four years since we’ve had a correction like this, and that’s a long time to go without one,” Ms. Warne said. “When stocks drop, it’s always scary, but it seems more scary this time because we haven’t had this recently.”
Also, technological and structural changes on Wall Street in recent years have ways of amplifying the normal push and pull of the markets. The increase in high-frequency trading, and the popularity of strategies that employ computer algorithms rather than humans to buy and sell, can exaggerate volatility.
Another possibility for why fear can build so quickly nowadays, experts say, is the exit of some traditional players like banks and brokerage firms. Under pressure from Washington and their own investors, banks and brokerage firms have reduced riskier activities like trading, only to be replaced by hedge funds — with quicker trigger fingers, in some cases.
Of course, these explanations are cold comfort as ordinary investors watch their savings shrink. Still, some individuals, having survived the trauma of the recession, are showing a bit of sang-froid because of the fear that has overtaken trading floors from Shanghai to New York to Frankfurt.
Margaret Matteson of Folsom, Pa., said she heard about the market sell-off on NPR as she was driving to work. She said she would only become worried if there were broader economic implications — she lost her last job in 2009 during the recession. The latest bout of volatility didn’t make her nervous, but she said she was a bit puzzled about what was behind it.
Ms. Matteson, 33, who manages a software database for an art museum, says she only cares if it affects her job. “I don’t care what it does to my portfolio,” she said. “It is going to sit there for 20 or 30 years. I like it when it goes down. I chip in and play my little game and put in $25.”
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