FINANCIAL MARKETS : Dow Plunges More Than 67 Points
Declining issues crushed advancers 1,809 to 467 in a busy trading day on the New York Stock Exchange Tuesday after news of a surge in the nation’s trade deficit triggered losses in all exchanges. Few stocks managed to buck the trend, with declining issues widely outnumbering advancers by about 15 to 4 on the New York Stock Exchange, where trading swelled to 325.89 million shares.
Selling intensified in the late afternoon and triggered restrictions on program trading by the NYSE.
Blue-chip stocks suffered their biggest setback in nearly six months as the news stirred up new inflation fears.
The Dow Jones industrial average was off a steep 67.63 points to end at 3,869.09. It was the largest one-day loss for the index since March 30, when it dropped 72.27 points.
The Nasdaq index sank 9.98 points to 766.74.
News of a dramatic worsening in the country’s merchandise trade deficit incited sell-offs in stocks and bonds right from the start of trading.
A related slump in the dollar against its foreign counterparts contributed to the jittery mood in the financial markets. The dollar neared its all-time low of 97.50 yen during trading, ending the day at 97.70.
The yield on the 30-year Treasury bond rose to 7.78% from 7.76% at Monday’s close but at the height of the selling yields hit 7.79%, their highest level since June 24, 1992.
But while bonds and the dollar steadied after awhile, the retreat in stock prices persisted.
Market analysts found it difficult to pinpoint a precise reason for Wall Street’s gloom.
Some said the market was concerned that the strong domestic economy was drawing in costly imports due to the depressed dollar while exports were sagging, a situation that could provoke the inflation-fighting Federal Reserve Board to raise interest rates further.
“The chances of the Fed tightening sooner rather than later are growing, and I think that’s bothering the market,” said Thomas Kirkenmeier, vice president at Northern Trust Co.
Hugh Johnson, chief market economist at First Albany Corp., said the widespread nature of the selloff was troubling.
Investors may have begun to question whether the apparent slowdown in the economic expansion, as illustrated by the poor trade report, will make it harder for corporations to meet profit projections.
“The optimism about the economy and corporate earnings for the third quarter was shaken,” Johnson said. “And, it was that optimism that had been driving the market.”
Some said the market was ripe for a correction after climbing last week more than 58 points, partly on trading related to the expiration of options and futures.
“You had a lot of institutions with an itchy trigger finger,” said Jay Ferguson, analyst at Ferguson, Andrews & Associates.
The Commerce Department report showed the deficit in goods and services rose 21.6% to $10.99 billion in July.
The unexpectedly large monthly trade gap raised long-simmering economic worries closer to the boiling point.
Economists said the dismal report was likely to keep the dollar under pressure could stoke inflation.
Rising gold prices also fanned the inflation fears that surfaced last week after the government reported that American factories were operating at closer to full capacity. December gold gained $3.60 to $397.20 an ounce in heavy trading at the Commodity Exchange. The most-active contract peaked at $399.10, a three-month high and near the magical level of $400.
Wall Street’s setback had a negative impact on late European trading.
The foreign markets also were coping with troubles of their own, which did nothing to improve the climate for U.S. stock traders. Shares lost ground in Frankfurt, London and Paris.
Among Tuesday’s market highlights:
* Among the losers on the Dow were Du Pont Co., off 1 3/4 to 57 3/4, Sears, Roebuck, off 1 3/8 to 48 7/8, and American Express, down 1 3/8 to 29 7/8.
Best Buy Co., which retails consumer electronics and appliances, fell 3 5/8 to 36 after its profits did not surpass analysts’ expectations.
Burlington Coat Factory Warehouse lost 7 1/2 to 15 3/4 after reporting a quarterly loss.
Musicland Stores issued a third-quarter profit warning and its shares sank 2 1/8 to 15 1/4.
* One bright spot amid the market’s gloom was Magma Power, which surged 7 1/4 to 34 3/4 in active Nasdaq trading after the company said it would consider an unsolicited takeover offer from California Energy for $35 a share.
