Dow Plunges 189 Points - UAL Deal’s Feared Collapse Triggers Rapid Dive - Biggest Drop Since ’87 Crash
The biggest wave of selling since the crash of 1987 swept through the stock market today as the Dow Jones industrial average plummeted about 189 points in the second-largest decline on record. The market was battered by word that the United Airlines buyout may have collapsed and by fear of higher inflation.
The speed of the decline spooked traders in a startling reminder of the worst stock panic ever almost two years ago on Oct. 19.
The widely watched Dow Jones average of 30 industrials closed at 2569.88, down a whopping 189.97, according to unofficial figures. Final figures were delayed due to the heavy volume of trading of 251.17 million shares.
Today’s decline in the Dow Jones industrial average was exceeded only by the 508-point loss recorded on Black Monday Oct. 19, 1987.
Just four days ago the average hit a record closing high of 2,791.41.
The market had been retreating steadily but gradually for most of the session until the group planning to buy UAL said it had been unable to get enough bank financing for the transaction it had planned.
That quickly cast a pall over shares of UAL and other companies that have been involved in or are planning debt-financed deals.
Trading was halted in shares of UAL, which earlier had fallen $5.50 to $279.75 on concerns about the financing.
Brokers said the news touched a particularly sensitive nerve among traders who had been worried lately about problems in the market for high-yielding “junk” bonds.
Earlier, the Labor Department reported that the producer price index of finished goods rose 0.9% in September, abruptly reversing a series of declines through the summer months. The figures were taken as a message that the Federal Reserve wouldn’t be very likely to take any steps soon to relax its credit policy. (Story, Page 3.)
The UAL news “was the trigger for the whole thing,” said Newton Zinder, an analyst at Shearson Lehman Hutton Inc.
“Also, it’s October,” Zinder added. “Memories of 1987 are still very vivid.”
Today’s stock market plunge came after several months of steadly rising stock prices.
Before today, the second-largest had been a 156.83-point drop a week after the record 508-point plunge, and the third largest was a 140.58-point drop on Jan. 8, 1988.
At 2 p.m. EDT, the Dow was off about 23 points. But an overwhelming tailspin pushed the key index down an additional 100 points in little more than an hour.
The drop is eerily reminiscent of a 108-point Dow drop on a Friday exactly two years ago, which proved to be a harbinger of the century’s second stock market disaster. When trading resumed the following Monday--Oct. 19, 1987--the Dow plunged a whopping 508 points.
Hildegarde Zagorski, an analyst at Prudential Bache Securities Inc., said she did not expect the events of 1987 to be repeated. “It’s not going to go down too much further from these levels,” she said shortly before the market closed.
The worst drop so far this year occurred on March 17, when the Dow lost about 48 points.
