BRACING FOR AN OIL SHOCK : Stocks : 123-Point Dow Loss Cut in Half in Wild Market
Worries about the invasion of Kuwait and an unfavorable government employment report Friday were a one-two punch that dropped the Dow Jones industrial index as much as 123 points before it rebounded to close off 54.95.
Amid unusually heavy volume, the market was hammered by conflicting reports on crude oil supplies, high-level diplomatic meetings and unconfirmed rumors that Iraqi troops were massing to invade Saudi Arabia.
The government’s jobs report--showing non-farm unemployment up 0.3 percentage points--added one more fact to the accumulating evidence that an economic slowdown is ahead.
“The economic data of this week add up to one word: recession,” said Thomas R. Walsh of Nikko Securities International, “and the oil problem can only mean one thing: inflation.” Head of the New York firm’s equity trading, he added, “You can see it’s not good.”
The Dow began its recovery to a closing 2,809.65 only after the Soviets reported that the Iraqis had pledged to begin pulling troops out of Kuwait, their tiny southern neighbor, on Sunday. The news lifted the Dow 63 points in 45 minutes. The low for the day was reached around 2 p.m. EDT.
Even so, traders said most sectors of the market suffered in the day’s selloff, including oil stocks, which had jumped sharply on Thursday. Defense stocks were among the few winners. (Story, D12)
Volume on the New York Stock Exchange totaled 292.36 million shares, topping Thursday’s unusually strong 253.09 million shares and marking the heaviest trading since last October’s mini-crash.
The day’s plunge made the week the second worst of the year. The Dow lost 88.86 in the five trading days, or 3.1%. The New York Stock Exchange composite index was off 2.3% for the week, and the S&P; 500 was down 2.4%.
“Everybody’s selling today, because nobody wants to be (holding stocks) when so much can happen in the Mideast over the weekend,” said Richard Meyer, managing director for equities at Ladenburg, Thalmann & Co. in New York.
The market turmoil was sufficient to trip the “circuit breaker” mechanisms that have been devised to slow selling during volatile moments at the New York Stock Exchange and the Chicago Mercantile Exchange.
At 9:50 a.m. EDT, when the Dow had fallen 50 points below Thursday’s close, members were barred from trading any stock in the Standard & Poor’s 500-stock index in an index arbitrage transaction, except on market upticks.
Index arbitrage is one variety of the controversial computer-directed trading technique called program trading, in which traders quickly buy and sell huge orders of stocks and the related stock-index futures to profit from small discrepancies in their prices.
Despite the index arbitrage limits, the Dow continued to fall another 75 points before bottoming.
In addition, at 1:19 p.m., when the S&P; 500 index future contract traded on the Chicago Mercantile Exchange had fallen 12 points from its Thursday close, further sales of the contract were halted for 30 minutes. Simultaneously in New York, program trading orders were diverted for five minutes to a special “sidecar” computer file for special handling.
Some traders said they believed that the circuit breaker steps had helped slow the downdraft of prices. But they added that the market did not recover until the report that the Iraqis planned a withdrawal.
The renewed buying late in the day did help some battered growth stocks post gains for the day, despite the market’s broad loss. That gave some analysts hope that the market can avoid a steeper selloff Monday. (Story, D4)
Among the Dow 30 stocks, five rose: Allied Signal, up 3/8 to 33 3/8; Boeing, up 1/2 to 54; International Paper, up 1 5/8 to 58 3/8; Navistar, up 1/8 to 3 5/8, and USX, up 1/4 to 34 7/8.
Selling continued to be heavy in many economically sensitive stocks, including Delta Air Lines, down 1 1/8 to 62 1/2; Bethlehem Steel, off 3/4 to 13 1/8; Chrysler, down 1/2 to 13 7/8; Alaska Air, off 1 3/8 to 18 3/4, and Clark Equipment, down 1 3/4 to 33 5/8.
Among special situations, Boise Cascade jumped 4 7/8 to 36 3/8 on rumors that it may be a takeover target.
For the day, declining stocks routed advancing issues by 1,457 to 264. The S&P; 500 index lost 6.62 to 344.86, or 1.9%. Once again, smaller stocks suffered the worst: The NASDAQ over-the-counter composite index tumbled 11.43 to 417.46, or 2.7%. For the week, the NASDAQ index plunged 5.7%.
After the big selloff at midday Friday, some over-the-counter traders raised complaints that some market makers at the National Assn. of Securities Dealers’ NASDAQ system weren’t answering their phones to take orders.
NASD officials denied the charge, contending that the NASD’s market surveillance section had received no such complaints.
NASD officials took the accusations seriously enough to call some news reporters to deny that market makers were ducking their phones. After the crash of Oct. 19, 1987, the NASDAQ system was investigated because of such accusations.
In Tokyo, stocks closed sharply lower for the second day in response to the Kuwait invasion, which has aroused fears of inflation in Japan’s oil-import dependent economy. The 225-share Nikkei average ended below 30,000 points for the first time in three months, closing at 29,515.76, off 729.42, or 2.4%.
In London, the Financial Times stock exchange 100-share index lost 19.9 to close at 2,284.6, while in Frankfurt, West Germany, the DAX index of 30 shares fell 28.44 to 1,840.94.
