The stock market suffered its biggest fall in almost two months Wednesday on fears that the upcoming August trade deficit will show a big deterioration in the U.S. trading position with the rest of the world.
Stocks also were undermined by a big drop in the dollar and a moderate decline in U.S. government bonds, traders said.
The Dow Jones industrial index dropped 30.23 points to 2,126.24 as rumors swept the market that the trade gap, to be announced Thursday morning, would be substantially higher than the $12 billion forecast by economists.
The Dow’s drop was the biggest since Aug. 15, when it lost 33 points.
Declining issues outnumbered advances by nearly 3 to 1 in New York Stock Exchange trading, and Big Board volume totaled 154.84 million shares, up from Tuesday’s 140.90 million.
Shortfall Estimates High
A year ago, news of an unexpectedly large trade gap set the stock market up for the October crash, according to equities analysts, and the market continues to be highly sensitive to the figure.
“Everyone is spooked by the trade report,” said Sam Hunter, a trader with Drexel Burnham Lambert Inc. Some traders estimated that the shortfall might be as great as $14 billion, compared to a $9.5-billion gap for July.
The Merrill Lynch Market Letter estimates a $12.5-billion U.S. deficit, up from $9.5 billion in July.
The market started slipping at the opening bell as investors were unsettled by the dollar’s sharp fall in earlier Asian trading.
For the first time since July 24, the dollar fell below 130 yen. In New York, it lost 2 yen from its previous close to finish at 129.05 yen.
Share prices also slumped on the other major U.S. exchanges. The American Stock Exchange’s market value index fell 1.86 to 301.91, while the NASDAQ composite index closed down 2.73 points at 382.55.
Stock analysts said firmness in oil prices added to the market’s pessimism. Up to now, the decline in oil prices had raised hopes that inflation would be contained and the Federal Reserve might ease its grip on credit.
The November crude contract rose 27 cents Wednesday to $13.82 a barrel, weighing on U.S. bonds. The benchmark 30-year Treasury bond lost more than half a point, raising its yield to 8.91% from 8.85% at Tuesday’s close.
Jon Groveman, head trader of Ladenburg Thalmann, said the day’s drop “shouldn’t be any surprise.” The 30-share Dow has always run into resistance around 2,150 points, he said.
Earlier in the week the index reached 2,158.96, its highest since the crash a year ago. Brokers said the market is vulnerable to profit taking because it has given back many of its previous advances and investor confidence is weak.
Some analysts said the market’s pessimism deepened on news that Nihon Tochi Co., a Japanese real estate dealer and major Konica shareholder, had filed for bankruptcy.
General Motors fell 1 3/8 to 73 7/8 after a securities analyst called GM’s fourth-quarter production schedule “incredibly unrealistic.”
Among individual shares, Walgreen rose 1 to 35 on reports that the Hafts are seeking to buy a large stake.
Holly Farms surged 6 5/8 to 49 5/8 after Tyson Foods offered to acquire it for $49 a share, most of it cash.
Phillips Petroleum Co. was the most actively traded stock on the Big Board, rising 1 3/4 to 22 3/8 on 4.3 million shares. Traders attributed its rise to speculation that Mobil Corp. or Royal Dutch Shell Group might be interested in acquiring the oil company.
Motorola was down 2 7/8 at 39 3/4 after posting disappointing third-quarter earnings. The firm said it earned 67 cents a share, well below Wall Street estimates of between 78 cents and 83 cents.
J. C. Penney fell 1 1/8 to 51 in brisk trading. Analysts speculated that the firm snapped up many of its outstanding shares Wednesday as part of a previously announced stock buyback program.
Texas Air fell 1 3/8 to 14 7/8 after its Eastern Airlines subsidiary agreed to sell the Northeast shuttle to developer Donald J. Trump for $365 million.
Tokyo share prices eased but closed above their lows in thin trading Wednesday. The Nikkei 225-share index fell 60.23 points to 27,409.37 after hitting a low of 27,218.80.
Share prices on the London stock exchange finished a jittery session sharply lower, pulled down by sinking prices on Wall Street.
The Financial Times 100-share index fell 24 points to 1,814.3, near its worst lowest for the day.