Dow Plunges 299 as Range of Fears Hits Big Investors
The stock market took its worst tumble in nine months Tuesday, as big investors seized on a wide range of fears to dump shares across the board. On the second-heaviest trading day in New York Stock Exchange history, the Dow Jones industrial average plunged 299.43 points, or 3.4%, to 8,487.31, the biggest drop since the 554-point, 7.2% sell-off of last Oct. 27.
Tuesday’s plunge steepens the decline that has slammed the market overall since late April, and blue-chip stock indexes since mid-July. The Dow index now has dropped 9.1% from its record high of 9,337.97 set on July 17.
A downbeat comment about Asia by the Treasury Department’s No. 2 official was cited as a factor in Tuesday’s sell-off, as was an abrupt about-face by an analyst who has been one of Wall Street’s biggest bulls.
Those negatives added to worries that have dogged stocks in recent weeks and months--most notably, a marked slowdown in corporate earnings growth, and President Clinton’s legal problems.
The broader Standard & Poor’s 500-stock index fell 3.6% Tuesday, and the technology-heavy Nasdaq composite index dropped 65.46 points, or 3.5%.
The big question now is whether this latest bout of heavy selling marks the end of Wall Street’s slump--or the beginning of something worse.
Market watchers said much of the selling pressure Tuesday appeared to come from big institutional investors worried that the nearly 8-year-old bull market has ended and hopeful of cashing in before an avalanche of selling overtakes them.
NYSE trading volume, at 853 million shares, was second only to the 1.2-billion-share day of last Oct. 28.
Yet small investors in mutual funds so far have shown few signs of wanting to bail out of stocks in significant numbers.
“When I see 50,000-share trades, I know that’s not my next-door neighbor selling,” said Alfred E. Goldman, chief market strategist for brokerage A.G. Edwards & Co. in St. Louis. “Individuals in general are much less emotional than the typical Wall Street money manager, who is still using his first razor blade,” he added.
Indeed, major mutual fund companies said Tuesday they saw only modest redemptions from small investors.
On the other hand, in some past market downturns individuals have reacted more slowly than professionals, but they have dumped stocks just as eagerly once they’d made up their minds to sell.
“They don’t panic--until they do,” joked Michael Metz, chief equity strategist for CIBC Oppenheimer. Metz believes investor psychology has turned so negative that the stock market is unlikely to regain its highs for at least another year.
Stocks started out on a positive note Tuesday morning, with the Dow gaining 70 points on news that tax cuts promised by Japan’s finance minister might stimulate the flagging economy there.
But that optimism was quickly undercut by Deputy Treasury Secretary Lawrence Summers, who told a National Governors Assn. conference that Asia still “has a long way to go” in working through its economic crisis.
After that, the Dow dropped nearly 300 points, fought back weakly in the afternoon and then slid again to close at its lowest point of the day.
“The market has had some very weak closes” in recent weeks, noted Gail Dudack, chief investment strategist at SBC Warburg Dillon Read. “You get a sense that the sellers are out there at the end of the day.”
Ralph J. Acampora, Prudential Securities’ director of technical analysis and a frequent market commentator on television, surprised Wall Street at midday by saying the Dow could fall 20% from its recent peak, which would take it to 7,500--back to last November’s levels.
It was a big turnaround for Acampora, who had been calling for the Dow to reach 10,000 by the end of this year.
Acampora said he reversed himself because of the recent pronounced weakness in blue-chip multinational stocks.
The blue chips, the market’s biggest and most popular stocks, are finally starting to experience some of the selling that has been pummeling many smaller stocks for months.
In fact, some experts have argued that Wall Street is going through a “stealth bear market,” in which the losses suffered by the majority of stocks are being masked by strength in a relative handful of big names in the Dow.
But on Tuesday, 29 of the 30 Dow industrial stocks suffered losses. IBM was the biggest Dow loser, dropping $5.94 to $126.81. General Electric Co. fell $4.06 to $85.44, and Coca-Cola Co. slid $3.50 to $78.63.
GE and Coke now have fallen more than 10% since reaching record highs in mid-July.
Still, the 1990s bull market has survived worse declines than the present pullback. Last October’s plunge, for example, climaxed a three-month slide of 13% in the Dow. The market stabilized after that, and went on to new highs this year.
Many experts say the U.S. economy remains strong enough--and interest rates and inflation low enough--to power the stock market forward after a temporary downturn, even with stocks still near historically high levels relative to underlying earnings.
With many investors buying stocks in retirement accounts to be tapped years from now, the public’s appetite for equities remains robust.
“Most individual investors don’t even know who Ralph Acampora is,” said Alan F. Skrainka, chief market analyst for Edward D. Jones & Co., referring to the Prudential analyst.
Skrainka believes there remains only a one in 10 chance of a true bear market developing soon. A bear market usually is defined as a drop of 20% or more in major stock indexes.
The last such decline occurred in 1990, after Iraq invaded Kuwait.
While acknowledging that broad measures of U.S. corporate earnings have weakened this year, Skrainka said there is a large segment of corporate America--especially those companies without much in sales to Asia--that will show double-digit profit gains this year.
At least one company saw a bargain it couldn’t resist Tuesday.
Aerospace giant AlliedSignal Corp. made a stunning, $9.8-billion offer to buy AMP, a maker of electronic components whose stock had been battered to a five-year low.
The unsolicited, $44.50-per-share bid valued AMP at 55% above the $28.63 price where it had closed on Monday. The offer, announced near the end of the trading day, send AMP’s stock soaring by $13.94, making it Wall Street’s most conspicuous winner on an otherwise down day.
Whether AlliedSignal’s bargain-hunting mentality soon takes hold in the market as a whole--or whether more investors opt to rush for the exits--remains to be seen.
In any case, new “circuit breakers” in place on the New York Stock Exchange will allow for much steeper one-day declines than in the past.
The market closed in late afternoon last Oct. 27 after the Dow fell 554 points.
Faced with criticism that its original circuit breakers were set too low and actually worsened the effects of last October’s sell-off, the NYSE revamped the system this year with Securities and Exchange Commission approval.
It now would take a 900-point one-day drop in the Dow to trigger a one-hour trading halt, and a harrowing 2,650-point drop to shut down trading for the day.
Last Oct. 27, circuit breakers halted trading for a half-hour and then for the rest of the day after the Dow hit triggers of 350 points and 550 points, respectively.
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* MORE ON THE PLUNGE: Is this the start of a deeper sell-off or a near-bottom? D1
* RELATED STORIES: D1, D4
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Slumping Blue Chips
The Dow Jones industrial average sank nearly 300 points Tuesday, in a selloff that worsened near the end of trading.
Tuesday’s Dow
Tues. close: 8,487.31
Source: Bloomberg News
