Dow Plunges 77.45 Points in ‘Buyers’ Strike’
For the second time in two weeks, stock prices suffered a major blow as the market’s most closely watched index, the Dow Jones industrial average, plunged 77.45 points Monday to 2,600.45, its lowest level since last October’s 190-point mini-crash.
Analysts said there was no single event that triggered the market fall. There was no change in key economic indicators. There was no major drop in the Tokyo exchange, which is often considered a precursor to trading activity on Wall Street. And there was no new news about interest rates.
But, over the last several weeks, the market has been jarred by a series of unsettling events that suggest the U.S. economy may be entering a period of simultaneous inflation and recession. Worries about what that would do to the stock market apparently pushed many investors to the sidelines, so there were few buyers to hold up stock prices when program traders began to sell.
“It’s sort of a buyers’ strike,” said Michael Metz, chief market analyst with Oppenheimer & Co. in New York.
Program traders, who buy and sell large blocks of stock via computer, started selling early in the morning, which “traumatized the normal buyers,” Metz added. “And, in this market, there is no reason to be a hero and be aggressive on the buy side.”
Additionally, bargain hunters, who typically look at big drops as a time to jump into the market, also appeared to be waiting on the sidelines.
“Anyone who had thoughts about doing some bargain hunting has been discouraged by the program activity,” said Trude Latimer, vice president of Josephthal & Co. in New York. “Since right after the first of the year, people thought equities were getting cheap. But they got clobbered, and now they are gun-shy. Buyers have absolutely disappeared.”
Monday’s sell-off was actually a continuation of a poor market performance that started early this year. Since the Dow Jones industrial average hit a record high of 2,810.15 on Jan. 2, the index has fallen nearly 210 points, including a 71.46 drop on Jan. 12. There have been only four days in which the index gained during that period, and analysts said those 10- and 20-point gains were “unconvincing.”
The Dow’s closing figure Monday, 2,600.45, is only slightly above what is believed to be a “support level” of 2,600. Any fall below that level might erode investor confidence further and set off a bigger slide in stock prices, analysts said.
Trading volume on the floor of the New York Stock Exchange totaled a moderate 148.38 million shares, down from 172.26 million on Friday.
The skid in stock prices has been blamed on a variety of factors, including a sluggish U.S. economy, concerns about the durability of Soviet economic reforms and worries about interest rates and corporate profits.
Currently, interest rates worldwide seem to be headed higher, which tends to depress corporate earnings and hurt stock prices.
Additionally, corporate earnings have been largely disappointing recently. The vast majority of big companies reporting earnings Monday posted steep declines or actual quarterly losses.
Delta Air Lines’ earnings dropped 25% during the second quarter, which ended Dec. 31. Quaker Oats Co. said its profits were down nearly 43%, and Tandy Corp.’s earnings fell 12.8%. First Interstate Bancorp and Merrill Lynch & Co. posted losses of $124.5 million and $362 million, respectively.
Many market experts do not expect to see profit turnarounds or a drop in interest rates until late this year. They are not calling for a rally on Wall Street until then.
“A bear market has probably started,” said Gerald Appel, president of Signalert, a Great Neck, N.Y., stock market newsletter. (A bear market is Wall Street jargon for a long-term downturn in stock prices, as a bull market describes a lengthy upswing.)
“The best advice to give investors is to stay out of the way until they see a bottom has occurred; but, right now, we haven’t seen anything like that,” Appel said.
Stock price declines were broad-based, with 1,338 issues down and only 262 advancing on Monday. Walt Disney shares fell $3.50 to $106; K mart was down $1 to $34; Great Western Financial dropped $1 to $16.25; Atlantic Richfield was down $2.875 to $106.625; Boeing closed down $1.625 to $59.25; IBM was off $2, closing at $96.625; and Litton Industries was down $1.125, closing at $75.50.
Takeover-related stocks also took big hits.
UAL Corp. shares fell $4.375 to $161.25 after a trade newspaper reported that bankers were reluctant to finance a planned recapitalization of United Airlines’ parent. Hilton Hotels, which put itself up for sale late last year, saw its shares fall $3.50 to $74.25.
“Everybody is groping for an excuse for the lack of buyers, but there is none,” Latimer said.
Those who had explanations relied on charting market statistics.
Years ending in zeros are historically bad on Wall Street, Appel said. Also, he blamed some of the market’s sluggishness on 1990’s being the second year after a presidential election. “The historical pattern is for the market to bottom out near the end of those years,” he noted.
Others believe that late 1990 is the first chance for interest rates and corporate profits to show enough progress to start a market upswing.
“I don’t look for the stock market to appear really strong again until we have this earnings squeeze behind us, and I don’t think that will show up until later in the year at least,” said Harold C. Warner, president of Merus Capital Management, the investment management arm of the Bank of California.
Other market averages also took a fall on Monday. The Standard & Poor’s 500-stock index was down 8.77 to 330.38. The New York Stock Exchange composite index, a broader measure of market activity, fell 4.36 to 183.20. The American Stock Exchange index fell 5.20 to 360.88, and the over-the-counter index was off 8.94 to 431.94.
The Wilshire equity index, which measures the value of all publicly traded U.S. stocks, fell 2.25% to about $3.2 trillion--for a loss of more than $74 billion in one day.
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