Dow Down 112 Points, Helped by Late Rally
Stocks fell sharply again Tuesday worldwide--driving the Dow Jones industrial average to its lowest point in five months--after investors were rattled anew by the deepening economic problems in Asia.
But a late rally enabled the U.S. market to avoid an even worse drubbing, and to end the day with much smaller losses than those suffered by many markets in Asia, Europe and Latin America.
Some U.S. market watchers suggested that the worst of the recent selling pressure might be abating.
The Dow Jones industrials dropped 112 points, or 1.3%, to 8,462.85, their lowest level since March 5 when they stood at 8,444.33. The close was a small victory for Wall Street’s bulls, however, because the Dow had been down more than 250 points earlier in the day.
Even so, the blue-chip index--which plunged nearly 300 points in a single session a week ago--has now skidded 9.4% since it reached a record high 9,337.97 on July 17.
Nearly five stocks fell for each one that rose on the New York Stock Exchange on Tuesday, and the Standard & Poor’s 500 index dropped 14.16 points to 1,068.98, a 1.3% setback.
The Russell 2,000 index of small-capitalization issues dropped 2.7%, resuming the downtrend that has slashed nearly 20% from that index since its April record high.
In other trading, bond yields fell as investors again rushed for safety. The benchmark 30-year Treasury bond yield fell to 5.60% from 5.62% on Monday, and traded as low as 5.55%--lowest in at least 20 years.
Commodity prices tumbled again on worries that the global economy might slow sharply. Oil, gold, copper and coffee prices all slumped.
U.S. investors were in a foul mood from the opening bell, because markets in Asia and Europe already had been hit with losses of 1% to 3.5% in response to heightened worries about Asia’s economic woes, especially in Japan.
In Tokyo, the Nikkei-225 index fell 219.43 points, or 1.4%, to 15,406.99--its seventh consecutive loss and the lowest close since June 29.
Japan’s recession seems to only get worse, which keeps pushing the Japanese yen lower against the U.S. dollar and other major currencies. The Japanese currency fell to an eight-year low of 147.35 yen to the dollar in late trading in New York Tuesday, down from Monday’s 146.15.
That trend, in turn, is fueling fears that China will have no choice but to devalue its currency, the yuan, which could then prompt another round of currency devaluations elsewhere in Asia.
The concern about China also triggered a 3.6% drop in Hong Kong’s bellwether Hang Seng stock index--one of the worst declines on global markets Tuesday--and left the index at a five-year low.
All of which bodes poorly for the growth of U.S. corporate profits--which has been the central issue for stock prices for years now. Indeed, much of the U.S. market’s pullback lately already has been blamed on the rash of companies that have cited Asia for a slowdown in their recent earnings growth.
Political bickering in Japan also is clouding the outlook for reforms that might improve Japan’s situation, further complicating investors’ attempts to gauge the profit outlook for American corporations, analysts said.
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However, certain technical trends indicate that the U.S. stock market, at least, is moving closer to reaching the “bottom” of its current sell-off, said Peter Canelo, an investment strategist at Morgan Stanley, Dean Witter & Co. in New York.
Data gleaned from block trades (involving blocks of 10,000 shares or more) and stock-options trading signal that investors are becoming increasingly bearish about the market’s outlook. That sounds ominous but, in the often contrarian way that Wall Street thinks, it’s a positive sign, Canelo said.
“To really see a bottom in the market, you don’t need optimism, you need a lot of pessimism,” he said. “It looks like there might finally be enough capitulation [by investors] that we’re close to a bottom.”
Others warned that the market still hasn’t experienced the “blowoff,” or extreme selling in very heavy trading, that often signifies that a market pullback has run its course. NYSE volume rose to 774 million shares Tuesday from 573 million on Monday, but was well below the 850-million-share-plus volume of Aug. 4 and 5.
“You need some sort of washout event that gets rid of all the sellers, and you didn’t have that today,” said Brian Belski, market analyst at Dougherty Summit Securities in Minneapolis.
To be sure, even if a so-called bottom is reached soon, it doesn’t mean stocks are set to soar again, Canelo cautioned.
“I’m not much worried that the market will go down a lot more,” he said. “‘I’m more worried that some rather nebulous negative factors--Asia, China, President Clinton’s problems--won’t be resolved with any clarity in the near future, so the market might just mark time for a while.”
Among Tuesday’s market highlights:
* Shares of banking, investment and finance companies continued to take the brunt of the selling, either because they have exposure to Asia or stand to see business slow because of the market’s pullback.
The biggest casualties included J.P. Morgan, down $4.69 to $115.50; Travelers, down $2.81 to $58.75; and American Express, down $2.31 to $98.50. All three are components of the Dow.
* Many tech issues fell, led by Dell Computer, down $4 to $106.25; America Online, down $5.63 to $107.13; IBM, down $1.38 to $128.50; and Texas Instruments, down $2.44 to $58.56.
* Among industrial names, Ford fell $1.31 to $50.69, and United Technologies sank $2.94 to $87.69.
* Big oil stocks helped cushion the Dow, in the aftermath of British Petroleum’s agreement to buy Amoco for $49 billion in stock. Chevron jumped $3.69 to $79.38, and Exxon rose 81 cents to $68.
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Times wire services were used in compiling this report.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Searching for a Bottom
Dwindling confidence that Japan’s economic problems can be solved anytime soon sent the yen to an eight-year low against the dollar on Tuesday, and spurred heavy selling in already battered stock markets worldwide.
The Yen’s Latest Plunge . . .
Weekly closes and latest, yen per dollar, in New York:
Tuesday: 147.35
. . . Strikes Another Blow at Global Stocks
* Hong Kong: Hang Seng stock index dives 254.67 points, or 3.6%, to 6,779.95, a five-year low. Concern mounts that China will devalue its currency, which could threaten the Hong Kong dollar’s
15-year-old link to the U.S. dollar.
* Mexico: Main stock index dives 2.8% to 19-month low, as peso falls to record low of 9.20 to the dollar. Foreign investors pull capital on worries about economy’s health.
* Russia: Stocks fall 9.1%, their fifth straight decline, to a 26-month low. Expectations grow that the government won’t fulfill its pledge to cut spending and increase tax collection to narrow the budget deficit, as it struggles to attract financing.
* Germany: Fear over Russia’s turmoil sends the main German share index down 3.8%, bringing its loss since July 21 to 15%. German bond yields fall to record lows amid flight to safety.
* Canada: Plunging commodity prices pull main Canadian stock index down 3.2%. Loss since April peak now totals nearly 20%.
n United States: Dow index falls as much as 258 points but ends down 112 points, or 1.3%, at 8,462.85. Dow’s loss from July 17 peak now totals 9.4%.
Hong Kong Stocks
Hang Seng index, weekly closes and latest:
Tuesday: 6,779.95
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Canadian Stocks
TSE-300 index, weekly closes and latest:
Tuesday: 6,779.95
Source: Bloomberg News, Reuters
