Asia Again Trips Dow
Wall Street headed into reverse again on Thursday, as an early rally fizzled and investors appeared to fret anew about the continuing stream of bad news out of Asia--and now, Latin America.
Pushed lower by heavy late selling, the Dow Jones industrial average closed down 125.00 points, or 1.7%, to 7,381.67--finishing almost at its low for the day. That raises the risk of more selling today, some analysts warned.
Early today in Asia, however, key stock markets showed signs of recovering, helped in part by news of a pending international bailout of Indonesia. In Tokyo, the Nikkei-225 share index, which sank 2.9% on Thursday to a two-year low of 16,364.94, inched up to 16,443.26 in late morning today.
On Wall Street, Thursday was another session of extraordinary trading volume, as turnover reached 712 million shares on the New York Stock Exchange, the third-heaviest ever after Tuesday’s and Wednesday’s sessions. Losers topped winners by 22 to 8 on the NYSE.
In a pattern similar to what happened Wednesday, heavy early buying of stocks wasn’t sustained, and sellers took control late in the day--despite another bond rally that pulled the yield on the bellwether 30-year Treasury bond down to 6.13% from 6.19% on Wednesday.
Traders said overnight losses in Asia on Thursday, and the growing threat that Asia’s currency devaluation wave could spread to Latin America, weighed on U.S. stocks. Technology issues were among the worst-hit, on fears that tech companies’ exports could be crimped by a slowdown in global growth.
The Nasdaq composite index, heavy with tech issues, tumbled 32.24 points, or 2%, to 1,570.41.
The tone for Wall Street was set in part by European stock markets, which also headed lower Thursday after rallying on Wednesday. Germany’s key share index sank 1.7%, while French stocks dove 2.8%.
Even so, those losses were small compared with the action earlier in the week. And some analysts said U.S. market’s tone still suggests that another major sell-off--like the 554-point, 7.2% Dow plunge on Monday--isn’t likely.
“There’s still nervousness in the market, but not to the degree of earlier in the week,” said Gene Peroni, technical markets analyst at Janney Montgomery Scott in Philadelphia. “We’re confident the market will hold in the Dow 7,200 range,” he said.
Rao Chalasani, analyst at Everen Securities in Chicago, said the Dow’s rally Tuesday from its lows just above the 6,900 level was convincing enough to suggest that that low won’t be seen again soon.
Still, he said, the U.S. market needs Asia to stabilize before any significant rally can occur.
“We need two weeks of a cooling-off period, where volume and volatility come down,” he said.
“We’re stuck in a trading range until we get confirmation that Hong Kong has sorted out its currency and economic issues,” said Philip Orlando, chief investment officer at Value Line Asset Management, which oversees $6.5 billion.
“The low in this trading range might be where we bottomed out on Tuesday--somewhere around 6,900,” Orlando said. “The high is somewhere around 7,500 or 7,600.”
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On Thursday, investors again dumped stocks that could be most affected by Asia’s woes--especially tech issues.
“Investors are worried about fourth-quarter earnings because of what’s happened in Asia,” said Guy Truicko, a money manager at Unity Asset Management in Lake Success, N.Y., which oversees $1 billion. Analysts soon will begin cutting earnings estimates, he predicted.
U.S. bank stocks also were slammed Thursday, which some analysts attributed to worries that Latin America could suffer the same currency devaluations that have hit Asia--which would hurt Latin economies and jeopardize companies’ ability to repay loans.
In Latin America, Brazilian, Argentine and Mexican stocks all suffered deep declines.
Yet many analysts continued to stress that the U.S. economy is in healthy shape and that foreign markets’ problems may not seriously affect U.S. growth prospects in 1998.
In fact, Federal Reserve Board Chairman Alan Greenspan said on Wednesday that the stock market’s recent decline may actually help the economy by slowing it from its recent fast pace to a more sustainable pace.
Among Thursday’s highlights:
* In the tech sector, Intel tumbled $4.50 to $75.75. Dell slumped $5.50 to $78, IBM lost $2.44 to $95.81, and Texas Instruments plunged $11.56 to $102.88.
But Electronic Data Systems jumped $5.25 to $37.88 after the computer-services company reported third-quarter profit that beat analysts forecasts.
* Banking stocks falling included Citicorp, down $4.44 to $124.94; Wells Fargo, down $7.75 to $288.25; and BankBoston, down $4.13 to $79.69.
* On the plus side, some companies expected to benefit from the Asian crisis rose. Retailers who buy goods made in the region, for example, are expected to pay lower prices thanks to Asia currency devaluations. Gap Inc. gained $1 to $52.56, Nordstrom jumped $2.25 to $60.38 and Dayton-Hudson rose $1.25 to $62.25.
* Pegasystems plummeted $9.38 to $18.38 after the developer of management software said it will delay announcing third-quarter earnings and may restate second-quarter results after its auditor changed its advice on how to account for certain contracts with a customer.
In other markets, oil rallied 51 cents a barrel as Iraq and the United States sparred over Iraq’s decision to bar two Americans from a United Nations mission.
Gold ended higher as Switzerland’s finance minister backed away from a Swiss National Bank plan to sell 1,400 tons of Swiss gold reserves. At the Comex, December gold prices ended up $2.80 an ounce at $317.20.
Swiss Finance Minister Kaspar Villiger said Thursday that Switzerland should not sell the full 1,400 tons of gold proposed in a Swiss National Bank plan last week.
“Gold prices are now nearly back up to the level from which the latest breakdown occurred, when news of potentially large Swiss gold sales were announced last week,” said Scott Mehlman, Credit Lyonnais Rouse’s chief bullion dealer.
* IS FOREIGN WORTH IT?: Some investors question idea of global diversification. A1
* WALL STREET: Two brokerages will compensate investors for delays. D7
