Jittery Stock Market Goes on a Wild Ride; Dow Cuts Loss to 10
Wall Street went on a roller coaster ride Wednesday as fears of rising interest rates and gloomy forecasts about the economy spooked many investors.
The Dow Jones industrial index plunged 62 points in the first 16 minutes of trading, recovered partially, then fell and rose again before ending the most active trading day of the year with a 10.82-point loss. The closely watched index closed at 2,604.50, on New York Stock Exchange volume of 207.83 million shares, up from 179.30 million Tuesday.
The jittery day was spurred by a variety of factors.
First, a $5-billion government bond issue was poorly received after the stock markets closed Tuesday, renewing fears that domestic interest rates might rise. There was also an imbalance of buy and sell orders in the futures market at the end of trading Tuesday, which caused a number of computer-directed program traders to sell Wednesday morning.
But more sobering were concerns about the health of the economy itself.
Several economists recently have lowered their forecasts and are becoming more widely divided on whether growth will continue and on when--or if--interest rates may be coming down.
“We are in an environment where people overreact to short-term stimuli because very few have any long-term convictions anymore,” said Michael Metz, chief market analyst with Oppenheimer & Co. in New York. “This is about as nervous a market as I’ve ever seen.”
Interest rates and economic growth figures have a dramatic effect on stock prices because they are indicators of future corporate profits. If growth is strong, companies are likely to sell more goods and services and post earnings increases. When growth is weak, corporate earnings generally suffer as well.
Yet this year is defying the norms.
Growth is slow if not at a standstill, yet interest rates have actually headed up in the past few months. The benchmark 30-year Treasury bond, for example, is yielding 8.4%, compared to 7.9% in December.
The government will be hard-pressed to lower those rates soon for two reasons, many experts believe. Inflation is still high, and a interest rate dip could fuel further hikes in consumer prices.
Moreover, international interest rates have jumped dramatically, so a drop in U.S. rates could make it virtually impossible for the government to borrow overseas.
“The market is in search of a solution right now, but it can’t find it,” said Joseph Wahed, economist with Wells Fargo Bank in San Francisco. “It needs good numbers on inflation or actual cuts in interest rates” but neither seems forthcoming in the immediate future, he noted. Wahed anticipates that a turnaround will come, possibly as soon as this spring, but the market is likely to languish in the meantime.
Still, stocks staged a late rally Wednesday, in part because of program trading, market experts said. During the market’s final hours, several big institutional traders executed “buy” programs for blue chip stocks.
For example, AT&T; managed to close the day up 1/2 at 41 1/4, General Electric rose 1/2 to 63 1/4 and Merck added 3/4 to close at 72 5/8.
UAL Corp., the parent of United Airlines, also helped spur the buying when rumors surfaced that the company may again be targeted for a takeover. The company’s stock rose 6 to close at 161 1/2.
Other big gainers included Cray Research, up 3 1/2 to 42 3/4, and Mylan Labs, up 2 1/2 to 22 1/4. Big losers included Teledyne, which was down 6 1/2 to 342 1/2, and Tucson Electric, down 3 1/4 to 13 5/8.
Among broader market measures, the New York Stock Exchange composite index fell 0.96 to 182.64. The Standard & Poor’s 500-share index closed at 330.26, down 1.35.
The composite index for the over-the-counter market fell 4.76 to 425.66. The American Stock Exchange market-value index lost 5.06 to 354.67, while the Wilshire index of 5,000 equities closed at 3,190.198, down 25.357.
In London, stocks rallied from the day’s lows but were still broadly weaker, with the Financial Times stock exchange index of 100 issues off 12.5 at 2,278.6.
In Tokyo, share prices plunged after news that U.S. bond futures were heavily sold after the New York close, sparking fears of a sharp reaction on Wall Street, brokers said. The 225-share Nikkei average tumbled 599.04, or 1.6%, to end the day at 36,778.98.
THE DOW ON THE QUARTER-HOUR: Tuesday close: 2,615.32. Wednesday close: 2,604.50, off 10.82
Source: Associated Press
