Dow Tumbles 44.92, Pushes Loss for Worst Week of ’88 to 108 Points
Turning in its second desultory day in a row, the stock market Friday completed its worst week of 1988 as the Dow Jones industrial index closed below 2,000 points for the first time in more than a month.
The widely watched index of blue chip stocks fell 44.92 points to 1,978.95. Combined with Thursday’s 43.77 loss and a more than 20-point drop Monday, the week’s record was a loss of 108 points, or 5.2%.
Trading continued to stagnate, with volume on the New York Stock Exchange slipping back to 163.17 million shares from Thursday’s 184.91 million.
The performance tended to confirm some investors’ and traders’ worst instincts: “This is the nature of a bear market,” said Jon Grovemann, head equity trader at the investment firm of Ladenburg, Thalmann & Co. “The major trend is down unless proven otherwise. Rallies, when they come, are just a pleasant surprise.”
For the second day in a row, the stock market flirted with a 50-point move--the threshold at which the NYSE imposes restrictions on computerized program trading. This trading allows large institutional investors to place millions of dollars in orders across the exchange floor in the blink of an eye, creating sharp price swings in stocks and leading market averages.
Under a rule effective last February, the exchange’s own automated order system is shut to program trades whenever the Dow industrials move more than 50 points in a day.
Traders said they detected considerable program selling throughout Friday’s session. Institutions are apparently using stock futures, which are traded in Chicago, to pull their money out of stocks and into the bond market, where prices have been falling. In a routine procedure, a big investor can sell stock futures as a proxy for selling large holdings of stock. He places the proceeds in the bond market and can liquidate his stock portfolio at his leisure.
The resulting drop in stock futures prices, however, tends to drag stock prices lower because other investors try to profit by selling stocks and simultaneously buying back the related futures. “We saw some of that action late Thursday and all day today,” remarked Robert D. O’Gorman, a market strategist for Nomura Securities in New York.
Others said stock investors were disappointed that an expected round of buying by pension and investment funds failed to materialize earlier this week. Traders had hoped that money managers would try to engage in “window dressing” by filling their cash-heavy portfolios with stocks in time for end-of-quarter accountings due March 31. But the buying had not appeared by Wednesday, the last day on which stock trades can be recorded effective March 31, and others in the market grew discouraged.
One sign that important investors remain unenthusiastic about stocks came with a revision Friday in the model portfolio of Merrill Lynch & Co., the nation’s largest investment firm. Merrill Lynch proposed reducing the stock holdings of the model to 45% from 50%, and it raised the cash position to 15% from 10%.
Takeover Speculation
Again for the second day, the trading slump was marketwide. Sharp drops were recorded by such blue chips as International Business Machines, down 2 3/4 to 107; General Motors, down 1 3/4 to 69, and Minnesota Mining & Manufacturing, down 2 3/8 to 57 7/8.
Takeover candidates again provided some gainers for the day. Gillette jumped 2 3/4 to 46 3/4 on rumors that Philip Morris may be preparing a bid for the company. Philip Morris shares slipped 3 to 88 1/2.
Avon Products, also considered a possible target, added 2 5/8 to close at 26 7/8.
Broader and secondary market averages both showed weakness. The Standard & Poor’s average of 500 institutional stocks closed at 258.51, down 4.84; the NYSE composite closed at 146.58, down 2.42; the American Stock Exchange index fell 2.66 to 294.64, the NASDAQ over-the-counter composite fell 3.06 to 372.54, and the Wilshire index of 5,000 equities closed at 2,582.589, down 39.812.
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,225, compared to 3,651 on Thursday.
In London, the Financial Times 100-share index fell 14.8 points to close at 1,767.9. Earlier in the day in Tokyo, the Nikkei index lost 154.57 points to 25,626.71.
