Dow Skids 43.77 in Tow of Bond Market, Dollar : Early in Day, Indicator Comes Within a Fraction of Triggering NYSE Freeze on Program Trading
Following the slumping dollar and bond market like water down a drain, the stock market dropped sharply Thursday with the Dow Jones industrial average losing 43.77 to close at 2,023.87.
Thursday’s trading was the market’s first significant move in three days but was not dramatic enough to give analysts any hint of what might lie ahead.
“This is a low-conviction, low-confidence market,” said Michael Metz, chief investment strategist for Oppenheimer & Co. “The big question mark is whether this is the beginning of another big slide or a false scare in the market.”
The desultory mood affected nearly all sectors of the market. Of the Dow index’s 30 component stocks, 29 fell, including such leading blue chips as International Business Machines, off 1 7/8 to 109 3/4; General Electric, off 3/4 to 41 7/8, and American Telephone & Telegraph, off 1/2 to 27 3/4.
Among broad indexes, the Standard & Poor’s average of 500 institutional stocks fell 5.56 to 263.35; the New York Stock Exchange Composite closed at 149.00, down 2.82; the American Stock Exchange composite fell 3.11 to 297.30; the over-the-counter composite fell 4.49 to 375.60, and the Wilshire index of 5,000 equities closed at 2,622.401, down 46.648.
Trading volume on the New York Stock Exchange, at 184.91 million shares, picked up only slightly from Wednesday’s 167.37 million shares.
Some professional investors noted that institutional money managers, including the heads of pension funds and mutual funds, have accumulated an unusually high 25%, or in some cases even 40%, of their investable assets in cash.
‘Still a Lot of Fear’
Such a large pool of money ready to be pumped into stocks is almost always considered a bullish sign, “but there’s still a lot of fear out there because of what happened last fall,” said Henry M. Greenleaf Jr., president of HT Investors of Providence, R.I., referring to the October market crash.
Greenleaf also sees no economic consensus among his fellow professionals about the near future. “Half the street is convinced we’re heading back toward inflation, and the other half thinks a recession is just around the corner.”
Thursday’s slide began at the opening bell, with word that the dollar had fallen sharply against the Japanese yen. This set up fears that Japanese traders may have abandoned a strategy of supporting the dollar’s price until the end of the Japanese fiscal year, March 31.
It also reflects a divergence in the two nations’ economies, with Japan’s expanding powerfully and America’s beginning to slow down. The divergence is pushing up Japanese interest rates relative to those in the United States, which might drain foreign capital from American financial markets. The dollar closed at 125.58 yen in New York, its lowest mark since mid-January.
On the Tokyo Stock Exchange, the Nikkei 225-share index closed Thursday at 25,781.28, down 113.95.
In London, the Financial Times 100-share index closed 1,782.7, down 49.5.
Most of the stock selling in New York took place in the morning, traders said. “We did all the damage then, and really only traded sideways after 11:30 (EST),” said William J. King, chief equity trader in New York for Nikko Securities, a leading Japanese firm.
Flirts With New Rule
The drop brought the market closer than ever to testing the New York Stock Exchange’s widely trumpeted experimental post-crash measure restricting computerized program trading.
Under a “voluntary” rule awaiting permanent approval from the Securities and Exchange Commission, the NYSE’s computer-driven DOT system (for “Direct Order Turnaround”) is closed for the day to program traders once the Dow index moves 50 points in either direction.
Program traders, mostly big investment firms that use computers to dictate the timing of large trades in stocks and related futures contracts, need the sophisticated DOT system to execute large orders in split seconds. Without it, they must send armies of brokers onto the exchange floors with sheafs of paper orders in hand, a procedure that slows down matters considerably and reduces potential profits.
The new rule, imposed Feb. 5, is controversial because many traders believe it simply ignites more program trading as the Dow moves toward the 50-point target and institutions strive to get their orders into DOT before it shuts down. At that point, the DOT restrictions might cause the very event most feared by the Brady Commission, the presidential panel appointed last year to examine the causes of the October crash: a breakdown of the continuous trading relationships between the stock and futures markets.
Thursday marked the fourth time since Feb. 5 that the market has flirted with a 50-point move before pulling back--and the closest call, as the Dow dropped as far as 49.9 points before recovering slightly.
“Nobody knows what would happen to the market at 50 points,” said Nikko’s King, “so everybody just pulls back.”
Among securities industry stocks, Merrill Lynch dropped 3/4 to 23 1/2; Salomon fell 1 1/8 to 21; First Boston dropped 1 1/8 to 25; Morgan Stanley slipped 3/4 to 59, and Charles Schwab yielded 3/8 to 8.
Some takeover-related issues, however, were gainers for the day. Irving Bank, which jumped 6 5/8 to 66, said it was negotiating with unnamed “third parties” about a possible merger, restructuring or sale of assets as an alternative to a hostile bid by Bank of New York.
International Clinical Laboratories soared 8 to 33 3/4 in over-the-counter trading. SmithKline Beckman made a $32-a-share bid for the company, which earlier had agreed to be acquired by Corning Glass Works for $26 a share.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,651, compared to 3,676 on Wednesday.
