Late Rally Keeps Dow From Continuing Fall
A late-day rally rescued major stock indexes from another big tumble Wednesday, but continued weakness in the market overall left open the question of whether Wall Street faces a more serious decline ahead.
One day after plunging 299.43 points, the Dow Jones industrial average closed up 59.47 points at 8,546.78.
The Nasdaq composite index, heavy with major technology stocks, also finished with a slight gain.
But in the broad market falling stocks outnumbered winners by a 3-to-2 margin on the New York Stock Exchange.
Big Board trading volume soared to 859 million shares, surpassing Tuesday’s 853-million-share total to rank as the second busiest session ever.
After Tuesday’s plunge--the biggest market loss since Oct. 27--many analysts were watching closely Wednesday to see if the “buy-on-the-dips” investor mentality that has ruled stocks’ nearly 8-year-old bull market remained intact.
The answer was mixed: After an early rally, the Dow fell nearly 125 points in late afternoon, only to turn around in the final 30 minutes of trading.
But with most stocks losing ground again--extending what has been a steep sell-off particularly in smaller stocks since late April--experts said the market remained a battleground, with plenty of pessimism still evident.
“I don’t think there’s any clear evidence that this is the end” of the sell-off, said Arnold Kaufman, veteran market analyst at Standard & Poor’s Corp.
Three of Wall Street’s most prominent bullish analysts did their best to cajole stocks out of their gloom Wednesday, arguing that with U.S. economic fundamentals still strong, there is no reason for the market to enter a sustained decline.
Their jawboning was meant to offset bearish comments by another prominent analyst--Prudential Securities’ Ralph J. Acampora--whose prediction on Tuesday of a 15% to 20% drop in the Dow helped spark that day’s sell-off.
“We believe that if investors buy today, six to 12 months from now they will be glad they did,” declared Edward M. Kerschner, PaineWebber’s chief investment officer.
Goldman Sachs & Co.’s influential strategist Abby Joseph Cohen called stocks “undervalued” based on the economy’s fundamentals, and said investors were overreacting to such issues as slower U.S. corporate profit growth and the effects of Asia’s economic woes on the U.S. economy.
Likewise, Jeffrey Applegate, strategist at brokerage Lehman Bros., said conditions were not in place to spark a bear market--usually defined as a drop of 20% or more in key indexes like the Dow.
Since peaking at 9,337.97 on July 17, the Dow has declined 8.5%. More than a third of that loss came on Tuesday alone, when the index slumped 3.4%.
Meanwhile, some major mutual fund companies reported slight outflows from their stock funds on Wednesday, suggesting that many individual investors were not eager to buy, despite Tuesday’s market plunge.
Stocks have been sliding in recent weeks under the weight of a host of worries, including Japan’s economic crisis, weakened corporate earnings growth and President Clinton’s legal problems.
There has been increasing talk on Wall Street that a mood change is underway after nearly eight years of market gains that have pushed stocks to historically high levels relative to underlying earnings.
The basic worry is that investors’ fear of losses may at last be getting the upper hand over their greed for more gains. The Dow has soared 123% just since the end of 1994.
While smaller stocks--judged more risky in general than blue chips--have been sliding since April, money has continued to pour into big stocks that offer comparative safety and reliable earnings.
That’s why there is such a sharp divergence between the big-stock Dow, which is still up 8% year-to-date, and the Russell 2,000 index of smaller U.S. stocks, which is down nearly 9%.
Because the most popular stock mutual funds own at least some blue chips, most fund investors still have a gain of between 5% and 8% on their funds year-to-date.
But the recent weakness in blue-chip names like General Electric Co., Walt Disney Co. and Procter & Gamble Co. is what has raised fears that the whole tone of the market has turned negative and that individual investors might decide to turn their backs on the stock market.
While bear markets have been a fact of life as long as Wall Street has been around, the last true bear market decline occurred in 1990. Since then, many investors have known only a rising market. Most market pullbacks have been brief, and fairly shallow.
With a record number of Americans now invested in stocks--especially via their retirement accounts--a prolonged downturn in the market could have big implications for the whole economy.
Rising stock prices boost consumer confidence and lead to increased spending--a phenomenon that economists call the “wealth effect.” With Asia’s financial crisis stifling demand for U.S. exports, strong consumer spending has been the main driver of the U.S. economy.
“People get their 401k [retirement account] statement every three months, they see the numbers rising and they feel better,” said Charles F. Henderson, chief investment officer at Chicago Trust.
Arthur Hogan, chief market analyst for Jefferies & Co. in Boston, said that the market seemed at a crossroads Wednesday morning.
“It looked like it would either be panic selling or people thinking it was the greatest buying opportunity in months,” he said.
But instead, investors took a middle road. The late-afternoon rally, strong as it was, was not enough to persuade some Wall Streeters that the tide had turned to the positive side.
“Sure, the rally convinced me--it convinced me we’re going down more,” said Robert E. Dickey, technical analyst at Dain Rauscher Wessels in Minneapolis. “We’ve got to take the Dow down to 8,100 before we get all the sellers flushed out of here.”
* SLIDING YEN: The anemic yen may be an economic plus for the Japanese. D1
* MORE ON MARKETS: D1, D4
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Tracking the Dow
Wednesday’s Dow Jones industrial average at 15-minute intervals.
Open: 8,497.61
Close: 8,546.78
Change: +59.47
Tuesday’s close: 8,487.31
Source: Bridge Telerate via Associated Press
