Worry--Then Relief : Stocks: Professional traders stepped in to lift the Dow when it was off 78.04, trimming its daily loss to 41.15.
After a brief respite Monday, stocks resumed their downward course as the Dow Jones industrial average gave up an additional 41.15 points Tuesday to close at 2,931.57 in a session marked by sharp volatility and heavy trading.
The decline, which came amid pessimism over the direction of the economy and concern over the Bush Administration’s ability to turn it around, more than wiped out Monday’s advance of 29.52 points, which itself came on the heels of Friday’s gut-wrenching 120-point free fall.
Still, Tuesday’s performance could have been much worse. Shortly after 2 p.m., with the closely watched blue chip barometer off a frightening 78.04 points, many traders were bracing for a second 100-point decline in three trading days. But then buyers, mostly professional traders spurred by strength in stock futures markets, came in, and the Dow rallied.
Unlike Friday, when many traders were caught flat-footed by the plunge, few were surprised by Tuesday’s action.
“Monday’s rally lacked breadth and conviction,” said Robert Kahan, trading chief at San Francisco-based Montgomery Securities. “I saw no real institutional buying.”
“There is genuine and growing concern about the vitality of the economy and the political leadership in this country,” added Robert Falconer, senior vice president of Aubrey G. Lanston & Co., a New York securities firm.
Tuesday’s rout began early, as traders, disappointed by the failure of overseas markets to echo Monday’s gains on Wall Street, sold at the opening bell. Within an hour, the Dow was off 50 and and the New York Stock Exchange’s “circuit breaker” designed to curb computerized program trading kicked in.
The malaise spread throughout the market, from the big-company shares in the Dow to smaller, over-the-counter issues.
“There were no safe havens,” said Jeffrey Applegate, a money manager at Shearson Lehman Advisors. On the NYSE, the number of stocks falling outnumbered ones rising by more than 4 to 1. NYSE volume was a heavy 241.4 million shares, compared to 241.9 million Monday.
“There are no quick fixes for this (economic weakness), and if the politicians attempt a quick fix, the markets will revolt,” said Kidder, Peabody & Co. chief investment strategist Stefan Abrams. Because of the federal deficit, there is little room for a tax cut or increased spending. Meanwhile, the Federal Reserve Board’s efforts to get the economy moving by lowering short-term interest rates has failed to bear fruit.
President George Bush’s generally upbeat pronouncements also have done little to inspire confidence, many on Wall Street said. As the market was plunging Tuesday, for example, Bush, in a message beamed by satellite from the White House to a publishers conference in Boca Raton, Fla., said: “Some fundamentals point to a good recovery. We ought to keep it in perspective.”
Although some traders took hope from the Dow’s 36-point rally in the final two hours of trading, others remained convinced that the market will continue to work its way down in days ahead. “I think the market is in the middle of a 10% correction--and we are only halfway through it,” Kahan said.
“We have had unrelenting bad economic numbers, disappointment after disappointment,” Falconer added. Compounding the economic uncertainty, he said, is political uncertainty: Bush, until recently considered a shoo-in for reelection, may face a difficult campaign next year.
“In the midst of uncertainty, whether economic or political, people don’t assume more risk--they assume less,” Falconer said. Hence, the pressure on stocks and on long-term bonds.
Indeed, investment strategists said one of the biggest negatives in Tuesday’s market was the uptick in long-term interest rates, which move inversely to the price of bonds. The 30-year Treasury bond finished the day at a yield of about 7.92%, versus 7.84% Monday.
Also contributing to the selling mood was a government report that the trade deficit widened to $6.53 billion in September, suggesting that the United States isn’t exporting its way back to economic health.
Among the market highlights:
* Many industrial stocks were hit hard on fears of a new recession. Alcoa fell 3 to 57, International Paper dropped 2 to 69 5/8, Fluor sank 1 3/8 to 36 5/8, Goodyear lost 1 3/8 to 47 and copper producer Phelps Dodge tumbled 3 to 70.
* The selloff of biotech stocks continued, after Monday’s bounce. Immune Response lost 2 to 35 1/4, Biogen fell 1 3/4 to 38 1/4, Synergen sank 4 1/4 to 48 1/2 and Alza gave up 2 5/8 to 76. But Amgen bucked the trend, rising 1 1/4 to 56 1/4.
* Entertainment and media issues were weak. Disney lost 2 3/8 to 106 5/8, CBS dropped 2 5/8 to 144 1/8 and Gannett slid 1 3/8 to 38 1/4.
* Among NASDAQ issues, profit taking hit many of the highest-flying issues of the past year, including Tokos Medical, off 2 1/2 to 33 1/4; Agouron Pharmaceuticals, down 2 1/4 to 13 1/2; Medical Care, off 3 1/2 to 68 1/4, and office-supply store Staples, down 1 3/4 to 21 1/4.
Stocks were also down on world markets. In Tokyo, the Nikkei average of 225 stocks closed moderately lower, falling 73.26 points to 23,326.86. In London, the Financial Times-Stock Exchange 100-stock index fell 39.8 points, or 1.6%, to 2,463.1. In Frankfurt, the DAX index lost 12.88 points to 1,599.05.
Credit
Long-term Treasury bond prices fell as investors grew worried about committing their money for lengthy periods and moved to shorter-term securities.
Investors selling in the stock market are also worried about tying up their money for as long as 30 years in the bond market, said Carol Stone, economist with Nomura Securities International Inc. Proceeds from those sales are going into the safety of shorter-term investments, she said.
“The same things are bothering (bond investors) that are bothering stock market investors, in terms of the federal government intruding increasingly into private-sector activities,” Stone said. “That’s discouraging both bond and stock market investors.”
The price of the Treasury’s bellwether 30-year bond fell 25/32 point, or $7.80 per $1,000 in face amount. Its yield rose to 7.91% from 7.84% Monday.
The federal funds rate, the interest on overnight loans between banks, fell to 4.688% from 4.75% Monday.
Currency
The dollar fell against most major currencies as traders grew worried that the stock market drop was because of continuing pessimism over the U.S. economy.
The dollar closed at 1.597 German marks in New York, down from 1.611 Monday. It rose slightly to 129.80 Japanese yen from 129.48.
“The market was tracking the Dow,” said David Gilmore, senior analyst at MCM Currencywatch.
“The Bush Administration looks like it has panicked” about the economy, he added.
Other late dollar rates in New York, compared to Monday, included: 1.417 Swiss francs, down from 1.430; 5.453 French francs, down from 5.506; 1,207.00 Italian lire, down from 1,217.00, and 1.1288 Canadian dollars, unchanged.
Commodities
Precious-metal futures prices rallied as investors sought refuge from the tumbling stock market in the historical safe havens of silver and gold.
On other commodity markets, energy futures fell; grains and soybeans were mostly lower; livestock and meat futures were mixed, and orange juice futures fell sharply.
On New York’s Commodity Exchange, gold for delivery in December rose $2.90 to $364.40 an ounce; December silver climbed 4.5 cents to $4.072 an ounce.
Platinum climbed $4.20 to $368.40 an ounce on the New York Mercantile Exchange.
“With yields on government debt instruments so low, people were saying, ‘Why not take a flyer with the gold as a hedge against an economic crisis?’ ” said Michael Segal, senior futures strategist with Geldermann Inc. in New York.
Meanwhile, oil and natural gas futures fell on the New York Mercantile Exchange in choppy trading.
Light, sweet crude for December delivery fell 40 cents to $22 a barrel, December heating oil dropped 0.96 cent to 64.43 cents a gallon, December unleaded gasoline fell 0.78 cent to 62.62 cents a gallon, and December natural gas plunged 9.1 cents to $1.91 per 1,000 cubic feet.
Market Roundup, D6
JAMES FLANIGAN’S ANALYSIS: A1
