Dow Off 56 After 101 Dive : Early Plunge Sends Shivers Through Wall Street : Money Ends Up in Bond Market
An unexpectedly severe plunge in stock prices spooked Wall Street today, as the Dow Jones industrial average tumbled more than 100 points before regaining some lost ground on one of the most volatile trading days this year.
Brokers said the behavior of the nation’s best-known stock average, which flirted with a record close of 3,000 last week but weakened late Friday, was a disturbing signal about the health of the market and the broader economy.
“It just scared the hell out of everyone,” said John Eberley, head of equity trading at the Chicago Corp. “It caught our attention.”
The Dow Jones average of 30 industrials fell 56.44 points to 2,904.70.
Declining issues outnumbered advances by about 6 to 1 on the New York Stock Exchange, with 225 up, 1,409 down and 382 unchanged.
Big Board volume totaled 209.03 million shares, against 177.81 million in the previous session.
“There was panic without a doubt,” said Chung Lew, head trader at Kleinwort Benson North America Inc.
The Dow average had plunged more than 100 points early in the day, regained about 35 points, dropped again and continued to seesaw. By 3:30 p.m. it was still down about 66 points from Friday at the 2,894 level.
“It went from sell to buy to sell again just between 9:30 and 11,” said Leigh Stevens, a strategist at PaineWebber Inc. “It’s unusual to see such back-and-forth like that in such a short time span.”
As money was flowing out of stocks, it flowed into the bond market, where prices on long-term Treasuries rose after an early decline. Investors often flee to the relative safety of fixed-rate securities, such as Treasury bonds, when stocks decline.
The severity of the stock market drop was intensified by computerized strategies known as program trading, which can dump enormous amounts of shares on the market.
The swift selloff caused a brief automatic halt in the Standard & Poor’s 500 stock-index futures contract, an important influence on stock prices, traded in the Chicago futures markets.
The halt was triggered by a “circuit-breaker” mechanism put in place by the financial markets in the wake of the crash of Oct. 19, 1987, when the Dow average fell a record 508 points.
Brokers blamed the market’s latest weakness on a number of causes, ranging from disappointing corporate earnings reports of leading U.S. companies, to the uncertain outlook for interest rates and the economy, to the abrupt fall in Tokyo stock prices.
Some analysts said investors were bothered by a report in The Wall Street Journal this morning about the prospect of financial collapse for the largest guarantor of student loans in the country.
Other brokers said the Dow drop was a symptom of the market’s performance in recent days. They said the average showed signs of weakness in the last several trading sessions as it struggled unsuccessfully to close above the 3,000 mark.
