Dow Plummets 98 Points as More Investors Jump Ship

Blue chip stocks proved again Thursday that gravity still works, as they continued to give back some of their spectacular November gains.

The Dow Jones industrials tumbled 98.81 points, or 1.5%, to 6,303.71--the biggest one-day percentage loss since the mid-July market pullback.

The broader market suffered much less damage, however, and there was little net change in either the bond market or the currency market.

But early today the Dow’s slump triggered a brisk Friday-the-13th sell-off in Asian stock markets. Tokyo’s Nikkei-225 index was off 2.2% by late morning, and Hong Kong’s key index was down 2.4%, as more investors chose to lock in profits from this year’s global market rallies rather than risk seeing them fade further.

On Wall Street Thursday had a promising start, as the government reported a modest rise in consumer prices in November, and weaker-than-expected November retail sales. That sparked a bond rally, driving the benchmark 30-year Treasury bond yield down to 6.55% early in the day from Wednesday’s close of 6.63%.

The Dow also rallied, climbing about 35 points at the outset.

But the gains were short-lived. Bond yields crept higher as trading wore on, and the 30-year T-bond yield finished at 6.62%, off slightly from Wednesday.

In the stock market, computerized program selling in blue-chip issues began to whipsaw prices early in the day. The Dow’s loss narrowed to about 20 points in afternoon, but program selling drove it sharply lower in the final hour of trading.

Thursday’s slide followed Wednesday’s drop of nearly 71 points, Tuesday’s gain of 9 points and Monday’s surge of 82 points.

“The market’s been extremely volatile, and that’s a sign of a market that isn’t really pitched in one direction or another,” said William Raftery, analyst at Smith Barney Inc. in New York.

Some traders suggested that more investors may be heeding Federal Reserve Chairman Alan Greenspan’s warning a week ago about potential “irrational exuberance” in financial markets.

With or without Greenspan’s comments, analysts say blue chip stocks, in particular, have been overdue for profit taking. The Dow reached a record 6,547.79 on Nov. 25, at which point it was up a stunning 28% for the year.

Even with its recent decline the Dow is off just 3.7% from its peak, though some stocks have fallen more. Coca-Cola, for example, is already down 11% from its 1996 peak of 53 7/8.

The good news is that some of the money coming out of blue chips appears to be flowing into smaller stocks, which had lagged the Dow during its big November rally.

On Thursday, falling stocks outnumbered winners by 16 to 9 on the Big Board, but they were nearly evenly matched on the Nasdaq market of mostly smaller stocks. And the Russell 2,000 index of smaller stocks lost just 1.32 points, or 0.4%, to 356.38, while the blue-chip Standard & Poor’s 500 index sank 1.6%.

Still, the market’s overall tone isn’t encouraging, many analysts say. “There is a loss of momentum in the stock market,” said Richard Cripps, strategist of Legg Mason Wood Walker in Baltimore.

As portfolio managers look to close the books on 1996, “Nobody wants to give back profits” gained so far this year, said Dennis Jarrett, a market analyst in Westport, Conn. “So when trouble hits [at this time of year] hitting the sell button” is the easiest decision.

“There’s an old saying that if the bulls get Thanksgiving, the bears get Christmas,” said James Engle, investment chief at Wood, Struthers & Winthrop in New York.

Among Thursday’s highlights:

* In the Dow, profit takers hit some of the year’s best performers, including Merck, down 2 7/8 to 76 1/4; IBM, down 4 1/2 to 151 5/8; Philip Morris, down 3 3/4 to 113 3/4; and Walt Disney, off 1 7/8 to 70 1/4.

* Bank stocks, also among the year’s biggest gainers, fell sharply. Wells Fargo slumped 3 1/2 to 264 1/2, NationsBank tumbled 3 1/4 to 92 7/8, First Chicago NBD sank 3 1/8 to 50 5/8 and Citicorp lost 2 3/8 to 98 5/8.

* A downbeat fourth-quarter earnings forecast from Tribune Co. drove its shares down 5 1/4 to 76.

* Tech shares were mostly lower. Iomega slumped 2 1/8 to 20, Cisco Systems fell 2 1/4 to 65 3/4 and Hewlett-Packard slid 2 3/4 to 50 7/8. Intel was unchanged at 136 7/8.

* On the plus side, real-estate related stocks were broadly higher as investors hunted for safe havens. (Investor Spotlight, D11.)

Also, Warner Lambert gained 7/8 to 76 1/4 after winning approval from the Food and Drug Administration to market its new treatment for diabetes.