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Dow Suffers Record Drop for Week as Market Slumps

Times Staff Writer

The stock market took another severe beating Friday, with the bellwether Dow Jones industrial average losing the most points of any week in its history.

The stock market’s loss Friday was its fourth in five trading sessions and stirred speculation that, after a feverish six-month advance, the market may be entering a new and far more difficult phase.

The Dow Jones index fell 27.18 points for the day and 82.5 points for the week. The weekly decline represented a 4.53% loss in the value of the index, the largest percentage decline in six years.

The week’s slowdown “is the most significant we’ve had since things took off last September,” said Eugene E. Peroni Jr., director of technical research at the Bateman Eichler, Hill Richards brokerage firm in Los Angeles. “This is going to give investors real pause.”

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Triggering Friday’s sell-off were increases in the price of oil and interest rates. Declining rates and oil prices have been principal causes of the market surge, which has pushed the Dow up more than 500 points since last September, to a record high last week of 1821.72. The Dow Jones index closed Friday at 1739.22.

The stock market’s decline renewed talk among market-watchers that investors, in their ardor, already have pushed stock prices higher than they should be. “So many stocks have been pushed way beyond where the strength of the corporations would seem to merit,” Peroni said.

Some say also that the economy has not appeared strong enough to sustain investors’ expectations.

The stock market has gone through several pauses--"corrections"--since beginning its breathtaking advance last fall. But some market-watchers say there are signs that the Dow’s current tumble may be more serious than its recent predecessors.

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Robert Nurock, publisher of The Astute Investor newsletter, of Paoli, Pa., noted that the number of stocks falling during each day’s trading has been steadily increasing, but the number reaching new highs has progressively declined. Also, many stocks of smaller companies that have been advancing steadily through the bull market are now beginning to jump erratically.

“That indicates more emotionalism is going into the (investors’) decision-making process,” Nurock said. “I think we’re going to see that continue.”

Nurock has urged investors to get into the market for the last two years, but in the last few weeks he has changed his view and now says prices are too high.

Changing Strategy

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Managers of some large financial institutions are taking a similar view and are changing their investment strategy.

The Janus Value Fund, a mutual fund based in Denver, had 100% of its assets invested in the stock market as recently as mid-March. Last week, the fund dropped the figure to 85%, and earlier this week to 70%, Ben Niedermeyer, president of the fund, said.

“We don’t think the stock market’s big move is over, but there may be a correction now lasting six to eight weeks,” he said. “We’re taking a defensive position.”

He said he feared that the market will be roiled by more disappointing news about corporations’ first-quarter earnings. And the end of the tax-preparation season means that the market won’t be nourished by any more infusions of cash into individual retirement accounts, he said.

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Bateman Eichler’s Peroni said he expects the market to enter a “nervous” period in which the Dow average undergoes radical swings of 75 points or more in the course of a single session.

The stock market’s recent movements, both up and down, have been magnified by “program trading"--computer-inspired purchases and sales that are based on price discrepancies between the futures market and the stock market.

Some market-watchers asserted that the market’s recent slump is only a minor slowdown, measured against its record-breaking advance. “This move has been a once-in-a-generation thing, and you have to keep the pause in perspective,” said Newton D. Zinder, market analyst with E.F. Hutton in New York.

Oil Prices Edge Up

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Oil prices have risen in the last four trading sessions. After dropping just below $10 on Tuesday, the price of a barrel of benchmark U.S. crude oil for delivery in May rebounded to $12.74 at Friday’s close. The closing price was up 99 cents a barrel from Thursday.

Several oil analysts are predicting continued oil price increases, and some have even renewed their recommendations of oil-company stocks, which have slid dramatically recently.

Some analysts have attributed the oil price rise to signs that the Reagan Administration might try to persuade Saudi Arabia to stabilize prices by cutting back on its production of crude oil. But others contend that the prices had simply fallen below a realistic level because of the oil market’s recent nervousness.

The last record point drop of the Dow Jones industrial index occurred in the week ended Oct. 20, 1978, when the index fell 59.08 points to 838.01. In percentage terms, this week’s drop was the worst since the week ended March 7, 1980, when the Dow slid 4.93%, or 42.58 points, to 820.56.

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Two broader indexes, the New York Stock Exchange Composite Index, and the Standard & Poor’s 500-stock index, also declined Friday. On the New York Stock Exchange, declining stocks outnumbered gainers by a ratio of about 3 to 1 as 148.1 million shares were traded.

Hardest Hit Stocks

Among the hardest hit stocks were Merck, which dropped $6 to $164.50; McDonald’s, which fell $2.50 to $92.25; and American Express, which was down $2 at $64.75.

Reflecting the adverse effects of the oil-price rise on airlines and railroads, the Dow Jones transportation index suffered the largest single-session point drop in its history. Norfolk Southern Railway fell $5 to $88, and AMR, parent of American Airlines, fell $1 to $53.75.

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