Stocks Pull Out of Tailspin in Day of October Jitters
Severe jitters about the economy sent the stock market on a spooky ride Monday, causing the Dow Jones industrial average to plunge nearly 105 points before a strong afternoon rally that left the index down only 21.61 points from Friday’s close.
The initial free-fall frayed nerves and rekindled fears about the big dives the market has taken in the past during the month of October. Adding to the worries, Monday’s drop came on top of a 54-point selloff on Friday, after gloomy news about employment, factory orders and commodity prices.
The Dow index ended the day Monday at 3,179.00. Although the index of 30 leading industrial stocks set numerous record highs in 1992, Monday’s close left it just above its low for the year, which was 3,172.41 on Jan. 2.
Traders could point to no single development Monday that triggered the morning selloff. Instead, they said it was a continuing reaction to last week’s bad domestic and European economic news, and particularly a feeling that the U.S. economy isn’t responding to repeated efforts by the Federal Reserve to stimulate spending and borrowing.
The market, traders said, also was reacting to continuing big drops in overseas stock markets, which continued to fall Monday in Europe and Japan. Investors worry that high German interest rates will continue to throttle the European economy, quelling demand for U.S. exports. The early selling in the U.S. stock market was intensified as the Dow dropped below 3,180, which analysts had considered a psychologically important support level.
“A lot of people are just fed up with what’s going on in the economy, both here and in Europe,” said Michael Metz, chief market strategist for Oppenheimer & Co., a brokerage. Although the Federal Reserve’s Open Markets Committee is set to meet today and is widely expected to lower interest rates again, market analysts expressed great skepticism that the economy--or the stock market--would show much short-term response to yet another rate cut. “There’s a feeling that in terms of dealing with the economy, we’ve really just about used up all the arrows in our quiver,” Metz said.
The initial steep plunge triggered two separate sets of the New York Stock Exchange’s “circuit breakers,” rules imposed after the Oct. 19, 1987, 508-point collapse that limit computerized program trading during rapidly falling markets.
The second-biggest one-day drop in the Dow also came in an October, on Oct. 13, 1989, when the index plummeted 190.58 points. The Great Crash of 1929 also began in October.
Monday’s drop in U.S. stock prices followed continuing declines in overseas markets. The London stock exchange Monday had its biggest one-day fall of 1992, with its main stock index dropping 103.4 to close at 2,446.3. Traders blamed that drop on the pound’s big slide against the German mark. In Tokyo, stock prices dropped for the seventh consecutive trading day, with the Nikkei stock average falling 222.57 points, or 1.28%, to 17,101.50.
Even though the Dow index recovered much of the ground it lost, falling stocks vastly outnumbered gainers, with 1,512 Big Board stocks declining, 414 rising and 437 unchanged. Volume was heavy, at 284.3 million shares, up from 187.4 million Friday. The New York Stock Exchange composite index was down 1.67, to 224.14. The over-the-counter market also went on a roller-coaster ride, with the NASDAQ Composite Index falling almost 20 points before recovering to close with a loss of 6.42, at 565.21.
Despite the bad economic news, analysts were reluctant to predict a sustained bear market. Eugene Peroni, chief market analyst for the brokerage Janney Montgomery Scott Inc., said nothing fundamental had changed in recent days. “This has been a market that really has been faced with gloom and uncertainty and distrust for months.”
Traders said they didn’t think the impending presidential election had much to do with Monday’s trading, even with the uncertainty added when Ross Perot joined the race.
Interest rates on short-term Treasury securities fell Monday to their lowest levels since 1962. The Treasury Department auctioned off $10.2 billion in three-month bills at an average discount rate of 2.67%, down from 2.73% last week. It was the lowest since three-month bills sold for 2.656% in May, 1962.
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