‘Black Monday’ Fears Hit Wall Street : Asian Markets Plunge, but Analysts See Little Panic Among U.S. Investors
Asian stock markets tumbled early today in the wake of the U.S. market’s Friday plunge, pulling the dollar lower and setting the stage for another tense day on Wall Street.
Meanwhile, Bush Administration officials pronounced the stock market basically healthy and again attacked a proposed credit-card interest rate cap that had helped spark last week’s rout.
One glimmer of potential good news Sunday evening: Major mutual fund companies and discount brokerages reported no panic on the part of individual investors.
The scene in Asia today:
* In mid-afternoon trading on the Tokyo Stock Exchange, the Nikkei index of 225 stocks was off 618.60 points to 23,480.58, or 2.6%--far less than the 3.9% plunge of the Dow Jones industrials on Friday.
* On the Sydney Stock Exchange, the key share index was down 26.1 points, or 1.6%, to 1,650.8 at midday.
* In Hong Kong, the Hang Seng index lost 62.72 points to 4,208.62 by midday, a 1.5% drop.
* The dollar fell, reflecting the flight from U.S. investments. The dollar traded at 1.605 German marks versus 1.619 marks last Friday.
The Dow’s Friday decline of 120.31 points, to 2,943.20, was fueled by a combination of worries about the weak economy, a selloff in high-flying biotechnology stocks and a bout of computerized program trading.
Because most of the Dow’s losses came in the final hour of trading Friday, many analysts spent the weekend worrying that the market could face a continuing avalanche of sell orders at the opening today.
That has resurrected fears of another “Black Monday.” On Monday, Oct. 19, 1987, the Dow skidded 508 points to 1,738.74 after falling 108.35 points the previous Friday.
However, Treasury Secretary Nicholas Brady predicted that the market today would have a “measured” response to Friday’s turmoil. Appearing on NBC-TV’s “Meet the Press,” Brady also said worries that the economy was headed for another recession were overblown.
“We’re coming out of a recession. Don’t worry about it,” he said. “It always looks dark at the bottom of a recession.”
As analysts searched for one specific culprit to blame for Friday’s market slide, many seemed to settle on the Senate’s approval last Wednesday of a cap on credit card interest rates. The measure was aimed at forcing banks to drop card rates, which have remained high even as other interest rates have dropped.
Brady called the Senate bill “wacky, senseless legislation” and said it would never become law. Wall Street fears that the measure could further reduce bank profits, already cut by mounting loan losses. Weaker banks could translate into fewer loans and thus a slower economic recovery.
For many investors, however, the instinct to sell stocks now may have less to do with the credit-card bill than simply with the desire to take some profits away from this year’s long bull rally--especially with the economy looking suspect. The average NYSE stock still is up 17.4% year-to-date.
Ed Bernstein, manager of the $15-million Prudent Speculator small-stock fund in Los Angeles, said Sunday that he had been “pondering all weekend” whether to trim his stock holdings Monday morning. He finally decided, he said, “that if the market opens very weak, I expect to do more selling into it.”
Many individual investors seemed to be taking the same wait-and-see attitude Sunday. At the Fidelity discount brokerage national phone center in Salt Lake City, manager John Witt said many investors who had called to place “sell” orders after the market close on Friday “now are calling back to cancel those orders. . . . Most are saying, ‘I’ll just see how the market opens on Monday.’ ”
At Charles Schwab & Co., the nation’s biggest discount brokerage, Vice President Tom Lawrie at the firm’s phone center in Indianapolis said Sunday that individual investors were showing “no panic” over the weekend, with calls up only about 25% over a normal weekend. Buy and sell orders placed in advance for the Monday opening were running just about even, Lawrie said.
Significantly, both Fidelity mutual funds and the large Vanguard Group of mutual funds reported that small investors were net buyers of stock mutual funds in the final hour of trading on Friday, as the market plunged.
While some analysts saw that as a sign of optimism, others cautioned that such buying may indicate dangerous complacency. Because stocks roared back after steep, swift declines in 1987 and 1989, too many investors may now assume the market will react the same this time. But often the market does just the opposite of what most investors expect.
Unless a large corps of buyers appears at the opening bell today, analysts caution that the stock market could quickly succumb to renewed selling by big investors such as the Prudent Speculator Fund’s Bernstein, who appear eager to take more of their 1991 paper profits before other investors get the same idea.
“We’ve all made a hell of a lot of money” this year on paper, noted Peter Anderson, president of mutual fund firm IDS Advisory in Minneapolis. His firm just recently adopted a more bearish tone toward stocks for 1992, and he believes that other investors also are likely to adopt that viewpoint.
But with short-term interest rates at 15-year lows, real estate prices falling and other investment choices showing little or no potential, many analysts believe that stock prices are unlikely to stay down for long.
At the first sign of better news on the economy, buyers are likely to reappear in droves, experts say. Thus, for individual investors who take a long-term view, there may be no reason to join the current selloff, they say.
“There’s just a lack of alternatives,” Anderson said. “Do you want to be buying commercial real estate in California now?”
Stocks: Assessing the Damage
How key stock indexes plunged on Friday, and where they stand year-to-date:
Fri. Point Pct. Yr.-to-date Index close change change change Dow transports 1,225.52 -56.99 -4.4% +34.6% NASDAQ composite 531.29 -23.55 -4.2% +42.1% Dow industrials 2,943.20 -120.31 -3.9% +11.8% S&P; 500 382.62 -14.53 -3.7% +15.9% Wilshire 5,000 3,725.64 -132.59 -3.4% +20.1% NYSE composite 211.92 -7.30 -3.3% +17.4%
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