Stocks Slump Again as Asia Fears Build
U.S. stocks and the dollar sank Wednesday as fallout from Asia’s economic turmoil continued to rattle investors.
Meanwhile, gold recovered slightly from 18-year lows, aided by a surge in silver prices.
The Dow Jones industrial average, down as much as 127 points late in the day, finished off 70.87 points, or 0.9%, at 7,978.79. It was the first close below 8,000 this month.
Broader market indexes were sharply lower as well.
“We’re starting to see a clearer picture of the . . . fallout from the currency crisis in Asia,” said First Albany Corp.'s market strategist Hugh Johnson. “Investors were generally worried that the crisis would affect the U.S. economy and earnings, and now that concern is focused on individual companies.”
But U.S. bonds rallied, in what analysts said was another “flight to safety” by worried investors. The benchmark 30-year Treasury bond yield sank to 6.07% from Tuesday’s 6.11%.
Concern about U.S. vulnerability to problems in Asia is rising at an inconvenient time for stock investors, because valuations on Wall Street already are very high, said Larry Wachtel, a market strategist at Prudential Securities.
“We were in a market that demanded perfection,” Wachtel said. With the Standard & Poor’s 500 stocks fetching a very rich 20 times projected 1998 earnings, on average--the “E” in the P/E ratio of prices to earnings--"there can’t be any problem with the E,” Wachtel said. “All of a sudden, the E is under a cloud.”
On Wednesday, it was J.P. Morgan and the banking sector that were hit by worries about weaker sales and earnings because of Asia’s economic debacle. Morgan, which derived 40% of its revenue this year from cross-country trading, said October and November trading revenues would be soft. Its stock fell $5 to $117.88, dragging down other banks.
Meanwhile, technology stocks--which were hammered Tuesday after software giant Oracle said slower Asian demand contributed to a poor quarterly earnings report--fell further.
The technology-heavy Nasdaq composite tumbled 23.94 points, or 1.5%, to 1,596.61, but it closed above its low for the day of 1,585.
Overall, declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange and on Nasdaq, in heavy trading.
In currency trading, the dollar fell against the yen as Japanese officials warned that Tokyo was ready to prop up its currency.
The dollar, which had gained 11% on the yen this year, fell to 129.28 yen late in New York from 129.59 on Tuesday.
But currencies of many smaller Asian countries continued to hit record lows against the dollar, exacerbating fears about the Asian economy’s slowdown.
In commodity markets, gold recovered slightly from the 18-year lows reached Tuesday, helped by a surge in silver prices to 2 1/2-year highs. Gold for December delivery rose $3.80 to $286.60 an ounce in New York.
Silver was the big winner: Near-term futures rocketed 43.2 cents, or 8%, to $5.82 an ounce in New York, amid speculation that a group of investors is trying to corner supplies at a time when demand from industrial consumers and jewelry makers is buoyant.
“The silver stockpile has shrunk enormously, and it may be that the market has been cornered by hedge funds,” said Ian Henderson, who manages funds for Fleming Investment Management.
Among Wednesday’s market highlights:
* Bank stocks following Morgan lower included Mellon, down $2.69 to $60.75; BankAmerica, down $2.31 to $78.50; and Citicorp, down $5.88 to $132.
* In the tech sector, Oracle stabilized after its plunge Tuesday, gaining 50 cents to $23.44. But Compaq dove $3.38 to $60, IBM lost $3.88 to 106.50, Motorola was off $2.25 to $59.88 and Bay Networks dropped $2.38 to $25.19.
* Other companies warning of weaker earnings in the near term included fastener maker Fastenal, which plunged $9.25 to $41 after saying its labor costs were rising sharply, and Tenneco, which lost $2.88 to $41.44 after the auto parts and packaging company said fourth-quarter earnings won’t meet expectations because of weak demand for its car products.
Yet auto stocks were surprise winners. Ford jumped $1.44 to $47.69 and GM rose $1.06 to $64.38.
* Among brokerage issues, Donaldson, Lufkin & Jenrette jumped $4.13 to $87.63 amid rumors that Chase Manhattan may bid for the firm.
Market Roundup, D8
* NYSE SEAT: The price of a “seat” on the exchange set a record. D10