Market Closes Out a Wild, Losing Year With Small Gain

Wall Street finished 1990 with a small gain Monday, as investors closed the books on the ugliest year for stocks since the early 1980s.

The Dow Jones industrial index inched up 4.45 points to 2,633.66. For the year, the Dow lost 4.3%, off 119.54 points from its 1989 close of 2,753.20.

It was the first yearly loss for the Dow since 1984, when the blue chip index fell 3.7%.

But the relatively minor 1990 drop masks the bear market thrill ride taken by stocks during the year. The Dow’s performance also fails to disclose sharp declines in most other market indexes, particularly those measuring small-stock performance:

* The NASDAQ composite index of over-the-counter stocks lost 17.8% for the year, the biggest percentage decline since a 31% plunge in 1973.

* The American Stock Exchange’s market-value index plummeted 18.5%.

After those stunning setbacks, the market’s quiet 1990 close belies what could be another wild time in the new year, as investors contend with economic recession and the Mideast powder keg.

“The market really is just marking time now,” waiting for some resolution of the Iraq-Kuwait crisis and the recession, says Geraldine Weiss, editor of the IQ Trends market newsletter in La Jolla.

On Wall Street, the Iraqi invasion of Kuwait on Aug. 2 will be remembered as the trigger that ended a spring and summer bull-market run by blue chip stocks and launched the first major bear market since 1982.

But even before that, the bear’s shadow was visible on Wall Street, many experts say. For example, the market had started the year on a high note, with the Dow rallying 56.95 points on the first trading day of 1990, to 2,810.15. But the optimism crumbled immediately afterward, and the market dived as investors were spooked by a surge in interest rates worldwide.

The Dow bottomed near 2,540 in late January, then rallied to 2,750 by early April, as hopes grew that interest rates would stabilize. In April, however, disappointing first-quarter corporate profit reports drove the index back to 2,650.

Another rally ensued late in April, as the Federal Reserve indicated that it was prepared to hold the line on interest rates. And, in fact, long-term rates began to slide in May, sparking yet another rally that carried the Dow to 2,940 by early June.

But all along, some analysts were warning that the market looked increasingly fragile, outside the Dow stocks. Bank and savings-and-loan issues were slumping badly as the financial system groaned under the weight of the 1980s debt buildup.

The Dow closed at 2,999.75 on July 16 and 17--unable to break the historic 3,000 mark--but even then, a few experts warned that the end was near.

With Iraq’s invasion of Kuwait, the accompanying surge in oil prices and the economy’s abrupt plunge, the bears finally had their say. Selling was vicious, and the Dow’s low for the year came on Oct. 11 at 2,365.10. At that point, the index was off 634 points, or 21%, from its July peak.

But since then, investors have come back into the market at a surprising pace, enough to lift the Dow 268 points, or 11%, from the low. Many bulls say stock prices already reflect the worst of the recession now in full swing. Investors, they add, are looking ahead to a recovering economy later in 1991. A steep drop in interest rates also has cheered the bulls.

“The bears had their year in 1990,” says Glenn Cutler, editor of Market Mania newsletter in Pacifica Calif. He’s forecasting an up year for stocks in 1991.

IQ Trends’ Weiss believes that the Dow is headed back to 3,000 sometime in 1991, if the Iraq crisis can be resolved without war. But she also sees the market slumping thereafter--perhaps to as low as 1,700 on the Dow--as the final shakeout of the ‘80s debt excess grips the economy.

Some bears see no chance for the recent rally to carry much further. They say the Dow’s mild drop in 1990 was a measure of the underlying fear in the market, as many investors lamely stuck with big-name stocks for safety reasons.

“We are now seeing signs that the broad market is once again deteriorating under the guise of a relatively stable Dow,” says Charles La Loggia, editor of Special Situation Report newsletter in Rochester, N.Y. “The market is now in a position to react badly to the next major negative surprise.”

Among the market highlights on the last day of trading:

* Some personal computer stocks, among the strongest issues lately, jumped. AST Research gained 1 3/8 to a new all-time high of 37 1/4, Advanced Logic added 1/2 to 10 1/4 and Dell Computer rose 1 to 18 1/2. Some money managers were buying these winners so that they would appear on year-end reports to clients, traders said.

* Northrop fell 1 7/8 to 17 3/8 on a published report that B-2 bomber production would be frozen.

* Some stocks expected to do well in a poor economy gained, including Vons supermarkets, up 5/8 to 22 1/2; health-care company FHP International, up 1 1/4 to 15 1/4, and drug firm Alza Corp., up 2 1/8 to 50 7/8.

* Bargain hunters snapped up such depressed names as Standard Brands, up 1 to 7, and Del Webb, up 3/4 to 6 1/4.

In overseas trading, London shares finally steadied at the day’s lower levels in extremely thin trading ahead of an early close for the New Year’s holiday. The Financial Times-Stock Exchange 100 closed down 16.9 points, at 2,143.5. For the year, the index lost 11.5%.

In Frankfurt, Germany and Tokyo the markets were closed for an extended New Year break.

CREDIT: Overnight Loan Rate Falls; Bond Prices Up Bond prices closed higher in quiet trading Monday, while the rate for overnight loans between banks skidded sharply after the Federal Reserve moved to offset a predicted short-term credit crunch.

The Treasury’s bellwether 30-year bond rose 11/16 point, or $6.88 per $1,000 in face amount. Its yield, which falls when prices rise, was 8.24%, down from 8.30% Friday.

Yields for the 30-year bond posted a slight gain in 1990, ending about 1/4 percentage point above 1989’s closing figure of 7.97%.

The federal funds rate, the overnight loan rate between banks, fluctuated throughout the day. It is a closely followed indicator of the Fed’s activities.

The rate fluctuated in a range of 6 percentage points but didn’t skyrocket as some economists had expected. It traded around 2% late Monday, down from 7.5% late Friday, according to Telerate Inc., the financial information service.

CURRENCY: Dollar Mostly Lower at End of Weak Year The dollar ended mostly lower on the final day of 1990, finishing a year of marked weakening against other currencies due in large part to the reunification of Germany and a slumping U.S. economy.

Currency analysts said the loosening of communism in Eastern Europe contributed to the dollar’s fall by strengthening the German mark.

“Germany is the big story in 1990,” said David Marshall, currency analyst at MMS International. “The dollar did worse than people expected due to the quickness with which the reunification of Germany went through and the strength of the unwinding of Eastern Europe.”

In addition, he said, “no one expected the U.S. economy to be as soft as it now seems to be.”

On Monday in New York, the dollar closed against the German mark at 1.4885, compared to 1.6950 marks at 1989’s end. Late Friday the dollar was quoted at 1.4935 marks.

Analysts said the dollar’s year-to-date loss against currencies other than the mark was not as pronounced, in part because the Middle East conflict seemed to hurt some other denominations more than the dollar.

In New York, the dollar ended the year at 135.50 Japanese yen, down from 143.85 yen at the end of 1989. But Monday’s dollar ended stronger than Friday’s close of 134.90 yen.

The British pound also strengthened against the dollar, closing the year at $1.9345 in New York, compared to $1.6105 at 1989’s close. On Friday, sterling was quoted at a closing $1.9282. In London, the pound rose to $1.9280 from $1.9220 late Friday. The pound traded in London for $1.6115 at the end of 1989.

COMMODITIES: Soybeans Rebound on Low Deliveries Soybeans staged a moderate comeback on the Chicago Board of Trade amid an unexpectedly low number of deliveries during an abbreviated pre-holiday session.

On other markets, energy futures gained, precious metals futures were slightly higher, livestock and meat futures were mostly lower and grains slipped. The markets had shortened New Year’s Eve sessions.

Soybean futures settled 0.5 cent lower to 4.5 cents higher, with the contract for delivery in January at $5.615 a bushel.

Soybeans bounced back from losses on Friday, when the futures dipped to new contract lows, reflecting expectations for heavy deliveries this week.

Wheat settled 2.25 cents lower to 0.25 cent higher, with March at $2.605 a bushel; corn futures were 1 cent lower to unchanged, with March at $2.3175 a bushel, and oats were 2.5 cents to 0.5 cent lower, with March at $1.1025 a bushel.

Gold and silver settled slightly higher on New York’s Commodity Exchange as traders squared their books for the start of the new year, analysts said.

Gold settled unchanged to 20 cents higher, with January at $394.20 an ounce; silver settled .30 cent to .20 cent higher, with January at $4.19 an ounce.

HOW KEY INDEXES FARED Helped by the December rally, most key stock indexes closed 1990 with relatively minor losses. Damage was more severe among smaller stocks.

1990 Percent change Index close Dec. 1990 Dow industrials 2,633.66 +2.9% -4.3% S&P; 500 330.22 +2.5% -6.6% NYSE composite 180.49 +2.5% -7.5% Wilshire 5,000 3,101.36 +2.9% -9.3% Dow utilities 209.70 -1.1% -10.8% NASDAQ OTC composite 373.84 +4.1% -17.8% Amex market value 308.11 +2.1% -18.5% Dow transports 910.23 +6.7% -22.7%