Stocks Plunge as Clinton Plan Ignites Concern
A frightened stock market on Tuesday voiced dissatisfaction and worry over President Clinton’s proposed economic plan, as the closely watched Dow Jones industrial average plunged 82.94 points to finish the day at 3309.49.
The sharp drop was the Dow index’s worst one-day setback in 15 months and raised concerns that continued declines in the stock market could undermine the nation’s fragile recovery.
Other U.S. stock indexes also fell Tuesday, including the Nasdaq index of smaller, over-the-counter shares, which plummeted 25.15 points, or 3.6% to 665.39, its biggest drop since Oct. 26, 1987, when it slumped 29.55 points.
Stock markets in Tokyo, London and other foreign capitals also fell. And, the U.S. dollar dropped against the German and Japanese currencies while the price of gold jumped.
“There’s a real fear that the higher taxes he’s proposing will hurt consumer confidence and consumer spending,” said Michael Metz, chief investment strategist for Oppenheimer & Co. in New York. “This puts a lid on stock market prices, as far as I can see.”
“Tax, spend and regulate; whether fairly or not, that’s what the stock market read out of his speech on Monday night,” said Phil Roth, chief technical analyst of Dean Witter Reynolds in New York.
However, the bond market--which responds to the outlook for inflation and interest rates--rallied early Tuesday before closing mixed. The rally reflected a measure of optimism that Clinton’s deficit-reduction proposals would keep both prices and interest rates low.
In brief remarks during a photo opportunity Tuesday, Clinton himself brushed off suggestions the stock market’s decline resulted from the speech he gave Monday night, in which he conceded that he could not reverse the country’s economic slide and cut the budget deficit without raising taxes on the middle class.
“The bond market’s a better indicator,” the President said, adding that the response of bond investors has been “very positive.” Indeed, yields on 30-year Treasury bonds fell to their lowest level in six years during early trading on Tuesday, to 7.07%. An afternoon slump in the bond market raised the yield to 7.14%, but long-term rates remain half a percentage point below their level when Clinton was elected.
Although most analysts agreed that Clinton’s comments Monday night were the main reason for the market’s slide, several experts also pointed out that the stock market appeared ready for a fall. After hitting record highs six trading sessions ago, “the stock market was overbought and looking for a reason for a correction,” said Robert Kahan, chief trader for Montgomery Securities in San Francisco. “President Clinton provided it.”
On the New York Stock Exchange, volume was heavy, topping 325 million shares, as losing stocks outnumbered gainers by about 9 to 2. The stock market rout also was broad based.
Drug and other health care companies were among the hardest hit, in response to Clinton’s jawboning of the pharmaceutical industry last week. Clinton’s accusation of drug-industry price gouging reminded market old-timers of President John F. Kennedy’s historic confrontation with the steel industry three decades ago, which also took a sharp toll on stock prices.
“Here’s a guy who said he was pro-business bashing the pharmaceuticals industry and talking about raising corporate tax rates,” said trader Kahan.
Shares of airline and other transportation companies, which would be hurt by Clinton’s planned energy tax, were not far behind.
About the only groups that climbed were the oils and the gold stocks. U.S. oil producers might benefit if the energy tax takes the form of a fee on imported oil.
In London, meanwhile, stocks closed sharply lower, dragged down by the U.S. sell-off. The Financial Times/Stock Exchange index of 100 leading shares fell 33.7 points to 2,812.2.
In Tokyo, stocks ended lower, with the Nikkei average falling 201.67 points or 1.18% to 16,916.32, Tuesday. In trading today, the Nikkei average fell 100.73 points, closing the morning session at 16,815.59.
Some analysts pointed out that the stock market is at its worst when there is uncertainty in the air. “The market wants to see specifics on proposed spending cuts,” said Eugene Peroni, director of technical research at Janney Montgomery Scott in Philadelphia. “All it has seen so far is the certainty of tax increases.”
