Stocks Skyrocket as Dow Rebounds for 288-Point Gain
The stock market staged one of its most powerful one-day rallies ever Tuesday, rebounding from Monday’s plunge on record-shattering trading volume.
After a frightening downturn in the first hour, stocks reversed course and took off as investors began frenzied buying of the same big-name stocks they had repudiated Monday, including IBM, Merck and Dell Computer.
But even a 288.36-point, 3.8% comeback in the Dow Jones industrials and a record 75-point gain in the Nasdaq market, weren’t enough to banish the specter of a bear market from Wall Street.
With fears rising about a U.S. economic slowdown, and no solution to the economic and political crises in Asia and Russia, some analysts said there is more pain to come in the stock market.
“I don’t think it’s over with yet,” said Edward P. Nicoski, a market strategist for brokerage Piper Jaffray Cos. in Minneapolis. “I just don’t trust that this [Monday] was a selling climax.”
Still, Tuesday felt good enough to many market professionals after weeks of tension capped by Monday’s naked fear, as the Dow plummeted 512.61 points, or 6.4%.
“There’s some blood back in our faces,” said Charles J. Bocklet Jr., managing partner of Bocklet & Co., a “specialist” firm on the New York Stock Exchange.
Specialists facilitate trades and act as the Big Board’s buyers of last resort. On Monday, Bocklet & Co. put up $20 million of its $70 million in capital buying stock that--for a time--nobody else wanted.
Tuesday’s rally, which recouped about 56% of the Dow’s decline on Monday, bailed the firm out of some potentially steep losses.
NYSE President William R. Johnston said that despite the recent downturn, none of the Big Board’s 34 specialist firms has shown any signs of financial strain.
As in the banking industry, there has been consolidation in the specialist community, with the remaining firms bigger and better capitalized, Johnston said.
In many respects, Tuesday’s bounce back mirrored that of last October, when a record 554-point drop in the Dow on Oct. 27--sparked by worries over Asia’s financial crisis--was followed the next day by a 337-point gain.
That rebound on Oct. 28 also set an NYSE volume record at the time of 1.201 billion shares--a record that held until Tuesday, when 1.204 billion shares traded.
The October turnaround set the stage for the latest leg of the nearly 8-year-old bull market, taking stocks up to stratospheric heights by mid-July, when the Dow peaked on July 17 at 9,337.97.
Since then, the Dow has lost 16.2% of its value, through Tuesday’s close. Early Tuesday the index was off more than 20% from its peak, crossing the threshold that usually defines a bear market.
Optimistic analysts said the Monday-Tuesday dropkick could perform the same function of “washing out” the selling pressure built up amid the latest surge of worries over Asia, Russia and other troubled foreign economies.
If the optimists are right, the way could be cleared for the bull market to continue.
As was the case on Monday, there was no major news that moved the markets Tuesday. Rather, they appeared to be swayed purely by rapidly shifting sentiment, traders said.
Tuesday’s trading was divided into two dramatic segments. After an early rally fizzled, the Dow plunged as much as 138 points.
But then it seemed to bounce exactly as it hit the 7,400 mark. From there, the Dow soared nearly 500 points before it tailed off slightly at the end of the day to close at 7,827.43, up 3.8%.
The technology-stock-dominated Nasdaq composite index showed a similar pattern, but the bounce was even higher. The index’s 5.1% gain Tuesday, after an 8.6% plunge on Monday, was the fourth biggest ever for the index.
Stocks such as Microsoft, Dell and Intel regained much of the ground they had lost on Monday.
Some traders were heartened by the extraordinarily high trading volume, which in addition to setting the NYSE record, marked Nasdaq’s second-busiest session ever.
High volume amid soaring stock prices suggests buyers acted with great conviction, analysts said.
“With this kind of volume, there’s a good case to be made that we’ve seen the low,” said Barry Berman, head trader at Milwaukee brokerage Robert W. Baird & Co.
The U.S. rebound spurred buying in battered Latin American markets. Brazil’s market soared 6.9%.
Market strategists at Goldman Sachs & Co., Bear, Stearns & Co. and A. G. Edwards helped boost U.S. investor sentiment by urging clients to raise share holdings.
However, other experts cautioned that there are significant differences between last October and now. The biggest is that Asia’s problems were just beginning to dawn on Wall Street last fall.
Today, nearly a year of devastation of Asian currencies and stock markets has left much of the region in an economic depression.
The result has been falling prices of commodities, such as oil, grain, lumber and metals, and a creeping global deflation that threatens the profits of many U.S. companies.
Even if the United States and Europe stave off a recession, falling corporate earnings mean falling stock prices. That equation, plus the near collapse of Russia’s economy, Japan’s banking crisis and President Clinton’s legal problems, have fostered a big change in market psychology since July.
In a memo to employees of brokerage giant Merrill Lynch, Chairman David Komansky and President Herbert Allison on Tuesday said selling “has reached an emotional stage right now, with further declines possible before a bottom is reached.”
Although the market’s troubles have been front-page news, Piper Jaffray’s Nicoski said many investors still will be shocked when they receive the monthly statements on their stock-market investments.
He said there could be a wave of selling later in the year, as investors try to at least salvage a tax break on capital losses that so far have been only on paper.
“It will be hard to rally through that,” Nicoski said.
Keep track of the rapid changes in the stock market with The Times’ Web site’s updated reports. Go to: https://www.latimes.com/quote
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
MONDAY
Friday’s close: 8,051.68
Dow close: 7,539.07
Change: -512.61
****
TUESDAY
Dow close: 7,827.43
Change: +288.36
Compiled by JENNIFER OLDHAM / Los Angeles Times
