A Record-Breaking Frenzy : Stocks Gyrate, Bonds Gain on Busiest Day Ever

U.S. stocks took a heart-stopping bungee jump Tuesday that carried the Dow Jones industrial average all the way from a 167-point slide to a 9-point gain by the close.

And as Wall Streeters waded through piles of tossed order tickets to head for home, the big question remained: Has the bull market just endured a rapid-fire, but ultimately healthy, “correction,” or are stocks on the verge of a much deeper decline?

The Dow ended at 5,358.76, for a 9.25-point gain on the day, after plummeting as low as 5,182.

The broad market also rebounded from a deep midday sell-off, but most major indexes were still down for the day.

The Standard & Poor’s 500 index was off 1.43 points to 628.37, after hitting 605.88 at midday.

And the beleaguered Nasdaq composite index of mostly smaller stocks ended down 6.72 points at 1,053.47, after hitting 1,008 at the lowest point of the day.

Trading volume reached record levels on both the New York Stock Exchange and the Nasdaq market, with a total of 1.6 billion shares changing hands across all U.S. markets.

In other markets, the news was mixed: Bonds rallied, with yields falling across the board. The 30-year Treasury bond rate fell to 7.02% from 7.07% on Monday, after the government’s report on June consumer price inflation showed only a slight rise.

But the dollar finally took a hit, as currency traders grew nervous over the magnitude of Wall Street’s plunge and its implications for the U.S. economy. The dollar slid to 1.484 German marks in New York, down from 1.516.

On Wall Street, some analysts described the day’s action as a classic “selling climax,” as sidelined but nervous investors who’ve been itching to sell amid the market’s recent decline finally pulled the trigger.

“We saw some panic selling, and then people stepped in,” said Louis Todd, head of equity trading at J.C. Bradford & Co.

“It’s time we have ice water in our veins,” said Mark Donovan, money manager at Boston Partners Asset Management. “‘People have been frozen in the headlights the last two weeks as fear took over.”

Trading got so hectic that NYSE circuit breakers, limiting some computer-guided trades, were triggered both when the Dow rose 50 points and when it fell 50. It was only the second time that has ever happened; the other was in May.

Yet analysts remained divided on whether the selling has run its course.

Some noted that the Dow’s low for the day Tuesday put it down almost exactly 10% from its 1996 peak. Such a classic 10% pullback, or correction, has eluded blue-chip averages since the 1990 bear market.

The S&P; 500, at its low Tuesday, was off 10.7% from its 1996 peak. Measured to Tuesday’s close, the S&P; has dropped 7.4%, the worst pullback since early 1994, when the market dropped as the Federal Reserve Board boosted interest rates.

Meanwhile, the Nasdaq market appears to have had its own personal bear market in the span of a few weeks: The composite index, at its Tuesday low, was off 19% from its 1996 peak.

Many blue-chip stocks have also taken substantial hits. GM, Disney, AT&T; and McDonald’s all are 19% to 20% below their ’96 peaks.

But is that low enough in the face of rising interest rates and concerns about future corporate earnings growth?

“We’re within 10% of our targets here on the buy side” for selected stocks, said Jim Engle, chief investment officer at Wood, Struthers & Winthrop in New York. But as of Tuesday, he said, he was only buying Philip Morris.

Indeed, some analysts were puzzled as to who bought much of the stock traded Tuesday, suggesting that Wall Street dealers and NYSE floor traders may have ended up with a big chunk of the inventory--hoping to unload it to real buyers in coming days and weeks.

Among Tuesday’s highlights:

* Some key tech issues that got hammered in recent sessions bounced back strongly. Hewlett-Packard rose 3 3/8 to 41 5/8, Compaq Computer gained 3 1/2 to 45, Microsoft jumped 4 3/4 to 115 3/8 and IBM added 4 7/8 to 95 3/4.

After the close of trading, Intel, the world’s biggest maker of semiconductors and a computer industry bellwether, reported better-than-expected second-quarter earnings. Shares rose as much as 2 1/8 in after-market trading to 72 1/8.

* Leading the Dow average higher, Kodak rose 2 7/8 to 69 7/8 and Caterpillar jumped 2 5/8 to 66 3/8. Both companies reported stronger-than-expected quarterly earnings.

* On the downside, weaker earnings reports hurt Wells Fargo, which dropped 1/2 to 227 5/8, and Eli Lilly, which fell 2 1/2 to 57.

* Oil shares were among the day’s biggest losers and helped lead the stock market’s early-afternoon retreat. Mobil fell 3 3/8 to 111 5/8, Chevron slipped 1 1/8 to 58 1/8, Amoco dropped 1/2 to 68 1/8 and Texaco dropped 7/8 to 86 3/8.

But some analysts said the selling of the oil stocks--which have held up well in recent weeks--was another sign that investors were throwing in the towel even on the strongest-performing stocks. That could be viewed as a “contrarian” sign of a market bottom.

In foreign trading, Mexican stocks mirrored Wall Street’s spectacular comeback and closed higher after being down more than 3%. Mexico City’s Bolsa index rose 1%.

But before Wall Street opened Tuesday, many other foreign markets took a beating.

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“We’re in a bear market. It’s that simple.” Bob Buettner, Manager of the Lindner Bulwark Fund.

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“Is it a correction? Well, that doesn’t do it justice.” Hugh Johnson, Chief investment officer at First Albany Corp.

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“We don’t have any historical signs that the bull market is over.” Larry Rice, Chief investment officer at Josephthal, Lyon & Ross

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Markets Coverage:

* Market’s turnaround raises hopes that share prices may be stabilizing after the recent slide. A1

* What’s eating the stock market? Confusion stemming from historic change. A1

* There’s a lot at stake for brokers in calming investor fears. D3

* There were signs that the bull market was headed for a wild ride. D3

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Is it over?

The Standard & Poor’s 500 index of blue-chip stocks sank as low as 605.88 on Tuesday before resurging. At the low the index was off 10.7% from its 1996 record closing high--a significant pullback in a bull market by any measure. The index ended the day at 628.37, which still leaves it down 7.4% from its 1996 high.

Biggest S&P; Declines Each Year Since 1974

1974: -37.6%

1987: -33.5%

1996: -7.4%

How Key Stocks Fared

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Tues. Decline Stock close from peak Exxon $86.38 -4.2% Coca-Cola 46.13 -7.5% Merck 61.13 -14.4% Alcoa 55.50 -16.2% Goodyear 43.50 -17.9% Sears 43.75 -18.8% GM 47.00 -19.1% AT&T; 55.50 -19.4% Disney 56.00 -19.9% McDonald’s 43.25 -20.3%

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Source: Standard & Poor’s Corp.