Wall Street Gets a Case of War Jitters; Dow Sinks 59 : Stocks: Economic concerns contribute to the rout. The closely watched market indicator closed at its lowest level in more than a year.
The financial markets were thrown into turmoil Monday as investors reacted to the combination of increasing tensions in the Middle East and domestic budget woes.
The Dow Jones industrial index dived 59.41 to 2,452.97--its lowest close in more than a year. Bond prices also fell, boosting yields for the benchmark 30-year Treasury bill to 9.17% from 9.12% on Friday. Meanwhile, oil and gold prices soared.
“There is a feeling that war is imminent,” said Michael Metz, market strategist at Oppenheimer & Co. in New York. “If you were to lose oil production in Saudi Arabia, there would not be enough oil to go around at any price.”
Consumers would find themselves so financially pinched after paying their energy bills that they would have little left over for discretionary spending, Metz added. “And since 60% of the economy is based on consumer spending, that translates to a very dramatic economic slowdown--probably a recession--and that could happen on a worldwide basis.”
The market activity was spurred by Iraqi President Saddam Hussein’s announcement over the weekend that he plans to bomb Saudi Arabian oil fields if the economic blockade has its intended effect and begins to strangle his nation. Market analysts believe that oil prices could double if Hussein carries out his threat.
“If you are talking $60-a-barrel oil, all bets are off for the economy. All bets are off for earnings, and all bets are off for the stock market,” said Hugh A. Johnson, chief investment officer with First Albany Corp.
Moreover, economic problems caused by high oil prices could be worsened by the apparent inability of Congress to make a significant dent in the budget deficit.
Unless Congress cuts the deficit, the Federal Reserve will not lower interest rates. High interest rates coupled with high oil prices could have a devastating impact on the U.S. economy and the stock market, analysts said.
“You have the worst possible combination of events for stock valuations,” said Richard Bernstein, manager of quantitative analysis at Merrill Lynch in New York. “Interest rates and inflation are rising, earnings are falling and there is a lot of uncertainty. You couldn’t ask for a worse situation.”
Added Johnson: “This is partially at the doorstep of the Middle East, but it is also at the doorstep of Congress and their failure to reach an agreement about the 1991 budget.”
The prognosis for the future is also bleak on Wall Street, industry analysts said.
“The thing about this market is you don’t have to wait long to have some losses,” Johnson said. “You buy a stock on Friday, and it’s down two points on Monday.” That serves to depress prices further, he said.
“When investors get beaten over the head enough, they lose the sense of urgency to buy stocks,” he added. “Stocks may look enticingly cheap, but investors still believe they can buy stocks cheaper tomorrow. It is a totally demoralized investor environment.”
Monday’s selloff was broad-based, with 1,414 issues declining, compared to only 237 advancing. The average share on the New York Stock Exchange fell 61 cents. Volume was moderate, with 162.21 million shares trading hands, compared to 201.05 million shares traded on Friday.
The few winners were primarily gold stocks.
* Newmont Gold rose 3 1/8 to 46 1/2.
* Homestake Mining climbed 1 1/4 to 21 5/8.
* And Placer Dome jumped 1 to close at 18 1/2.
Meanwhile, banks, transportation companies, aluminum firms and blue chip stocks lodged steep losses.
* Chase Manhattan, which announced a costly corporate restructuring on Friday, fell 1 5/8 to close at 11 1/8.
* First Chicago closed at 16 7/8, down 1 3/8.
* And Bankers Trust dropped 2 to finish the day at 32 1/4.
Meanwhile, UAL Corp. lost 8 1/2 to close at 92 1/4 as buyout plans for the carrier appeared to grow more uncertain. Delta Air Lines, which forecast “significantly worse” earnings for the current quarter, closed down 1 3/4 to 52 7/8.
Boeing was down 2 7/8 to 40 3/8, General Electric fell 1 3/8 to 54 1/2, Philip Morris was off 7/8 to 43 7/8 and IBM slipped 1 3/4 to close at 105.
The NYSE’s composite index of all listed common stocks dipped 3.52 to 167.51. The American Stock Exchange market-value index slipped 3.17 to 312.84. And the NASDAQ index of over-the-counter stocks fell 10.09 to 352.16. The Standard & Poor’s 500-stock index was down 6.73, closing at 304.59.
Stocks also fell in foreign markets.
In London, the Financial Times-Stock Exchange 100-share index closed down 35.2 points, or 1.7%. And Frankfurt, West Germany’s, 30-share DAX index dropped 30.52 points to 1,416.05.
The Tokyo Stock Exchange was closed Monday for a national holiday.
Futures based on the exchange’s widely followed Nikkei 225 stock index will make their U.S. debut today at the Chicago Mercantile Exchange.
The dollar-denominated contract will be based on the index of Japanese stocks that many Western investors look at when they get up in the morning. Traders will buy and sell futures in the index the same way they now do with other commodities.
The exchange said it is seeking a “niche” in the increasingly global marketplace for stocks.
STOCKS TAKE A DIVE
Friday close: 2,512.38
Monday close: 2,452.97, down 59.41
