Dow Drops Record 108.36 in Heaviest Trading in History
With its bears in full roar, the stock market experienced a bad day of legendary proportions Friday as the Dow Jones industrial average plummeted 108.36 points amid the heaviest trading in the history of the New York Stock Exchange.
The scale of the rout easily eclipsed the market’s previous records for one-day point losses--the last set only on Wednesday, when the closely watched Dow index declined 95.46 points.
Another record that fell dated from the market’s Great Crash, as Standard & Poor’s index of 500 institutionally favored stocks dropped 15.38 points, exceeding the 12.34-point decline of Oct. 28, 1929. The New York Stock Exchange, American Stock Exchange and over-the-counter indexes also had record losses.
‘Real Panic Selling’
“This is the one everybody was talking about--the big blowout,” said Robert Jacobson, an exchange specialist, which is a broker responsible for overseeing floor trading in a number of stocks.
“I’m wearing my helmet,” said Henry M. Greenleaf Jr., president of H. T. Investors, an investment firm based in Providence, R.I. “The only people I know who weren’t hurt today are those who sold everything last week and went to Europe to travel. Today we saw some real panic selling.”
The market’s volume Friday of 338.48 million shares handily outstripped the trading pace of last Jan. 23, the previous record volume day, when 302.29 million shares changed hands. Traders on the New York Stock Exchange said, however, that there were no immediately visible problems on the highly automated trading floor.
Some of that heavy activity came during the market’s hairpin turns. At 2 p.m. EDT, for example, the Dow index had fallen by more than 84 points when it suddenly rallied to regain 40 points in just half an hour. At the end of the day, the market was down by more than 130 points with minutes to go before rallying by 22 points in the final moments. The Dow finally closed at 2,246.73.
Friday capped the market’s worst week ever in point terms, a mark that had been set just a week ago with a loss on the Dow industrials of just under 159 points. This week, the Dow index dropped 235.48 points, or 9.5%. Starting with the Dow’s all-time record high of 2,722.42 on Aug. 25, the current “correction,” or reversal, has pared 475.69 points, or 17.5%, from the index. That is the largest correction since the latest bull market in stocks began in August, 1982.
In percentage terms, the market’s fall is still dwarfed by the events of the Great Crash in 1929 and by other severe downturns. In only two days in 1929, Oct. 28 and 29, the Dow industrials plunged 24%. In the last two weeks, the Dow index has fallen 14.9%. Friday’s percentage decline of 4.6% is only the 76th-biggest percentage loss ever in the Dow industrials.
Market analysts had little trouble finding general explanations for Friday’s trading. These included an overall concern about higher interest rates, which drain money out of the stock market in favor of higher-yielding bonds; a slump in takeover stocks caused by rising interest rates and a new tax proposal with anti-takeover implications from congressional Democrats, and a continuation of computer-inspired selling programs similar to those that drove stocks down more than 50 points in the last 30 minutes of Thursday’s trading day.
Traders said they also detected waves of “margin calls,” in which investors who have bought stocks on credit are forced to sell them to satisfy the lenders; and stock sales by mutual funds experiencing a surge of redemptions by individual investors frightened that the correction might lengthen into a genuine bear market.
But a considerable measure of Friday’s activity was psychological, as professionals on the New York Stock Exchange floor described the day’s activity in terms one might reserve for a major earthquake.
Pressure to Sell
Jacobson, the exchange specialist, said the pressure from investors to sell shares was so intense that floor brokers were telling him that “any price would do--as long as there was a price.” By 4 p.m. EDT, he said, the din at his trading post was so great he could not hear the clang of the closing bell.
The impact on specialists, who by exchange rules must buy stocks when all others are selling, could be prodigious. “We gave back a fortune today,” Jacobson said. Added Robert Fagenson, another specialist: “Today was probably the single worst day for the specialists in modern times. There was a complete vacuum, in which we were the only buyers.”
Other participants said the plunge was fueled by professional investors who had finally concluded that their hopes for a near-term rise in the market were futile. “It was almost throw-in-the-towel type selling,” said Gerald Simmons, managing director at Smith Barney, Harris Upham & Co. “A lot of people hoping for a rally have given up.”
Near ‘Turning Point’
By Wall Street’s peculiar rules, however, the severity of Friday’s fall may bring health back to the stock market, like the breaking of a fever marks the recovery of a patient. “I think we’re within a whisker of that final turning point,” said Greenleaf, who added that his firm had already begun to look for stocks that could be bought at comparative bargain prices following the harsh collapse of these two weeks.
Still, many observers expect the market’s recovery from its rattling this month, which has given the Dow three of its five worst days in history, to be slow.
Friday fulfilled the predictions of many market observers that computer-inspired trading, which for the last two years has consistently magnified swings in the market indexes, would beget a one-day loss of more than 100 points. In this trading, large institutional investors such as insurance and pension funds can shift millions of dollars from stocks to corresponding stock-index futures in the blink of an eye to take advantage of ephemeral price differences between the stocks and the futures.
Preserving Profits
Many of these programs involve so-called portfolio insurance, a technique of preserving profits in declining stock markets by selling stock-index futures and using the resulting gains to offset stock losses.
Thursday and Friday, “the portfolio insurers waited until late in the day to dump their futures,” said Robert Gordon, president of Twenty-First Securities, a New York money management firm. The sales depressed futures prices, which in turn attracted program traders who sold their stocks and bought the futures. The trend of declining futures prices followed by stock selling swept the stock market down.
Gordon also noted that many takeover stocks sank like stones in the inhospitable merger-and-acquisition environment. Some fell 10% or more in price, such as Gillette, which closed at $32.75, down $3.875; USG, which fell $5.75 to close at $43.375, and Santa Fe Southern, which closed at $51, off $5.25.
But heavy losses were suffered by many of the leading stocks comprising the Dow Jones industrial average, in which all 30 component stocks fell. Some of those were in market sectors, such as drugs, consumer goods and retailing, which have been particularly hard hit in the current slump. These include Sears, Roebuck & Co., down $3.50 to $41.50; Merck & Co., down $6.25 to $184, and Procter & Gamble, down $5.625 to $85.
Related stories in Business.
