Dow Leaps 380 for Biggest 1-Day Point Gain Ever

By THOMAS S. MULLIGAN

Sept. 9, 1998 12 AM PT

TIMES STAFF WRITER

NEW YORK —

The stock market staged a powerful rally Tuesday, as investors reacted exuberantly to gains on major overseas exchanges and Federal Reserve Board Chairman Alan Greenspan’s hint of a possible interest-rate cut.

Both the Dow Jones industrial average and the Nasdaq composite index scored their largest one-day point gains ever, the Dow soaring 380.53 points, or nearly 5%, and the Nasdaq composite index 94.34 points, or 6%, in heavy trading.

The rally recovered nearly all of last week’s 411-point Dow loss and vaulted the blue-chip barometer back into positive ground for the year, but many analysts on Wall Street remained unconvinced that the bull market is back on track.

“It was a relief rally that the world did not come to an end over the weekend,” joked Stanley Nabi, vice chairman of New York money-management firm Wood Struthers & Winthrop.

Analysts will closely watch this week’s trading to see whether the upswing is sustained or was merely a fleeting reaction to Greenspan’s comments.

Though Nabi believes that the correction that has brought the Dow down 16% from its mid-July peak is mostly over, he said it could take “several months of base building”--or sideways movement as stocks regain their balance--before the markets resume climbing steadily.

Other analysts cautioned that the economic outlooks for Asia, Russia and Latin America remain dark and that U.S. companies are rapidly shrinking their earnings estimates for the rest of this year.

For at least a day, however, the gloom lifted on Wall Street as traders snapped up shares of banks, high-tech firms and airlines--many beaten down to 40% or 50% below their peak prices for the year.

The Dow rose to 8,020.78, while the Nasdaq index leaped to 1,660.86. Trading volume on the New York Stock Exchange was almost 815 million shares, making it the 10th-busiest day in history.

It has been an extraordinarily hectic time on Wall Street, with nine of the 10 biggest trading days coming in the last month, capped by the record 1.204-billion-share day on the NYSE on Sept. 1, when the Dow rebounded 288 points from its 512-point loss the day before.

In its rally Tuesday, Wall Street followed the lead of markets in Asia and Europe, which were up sharply on Greenspan’s comments at UC Berkeley on Friday. The Fed chief said he considers global economic turmoil a greater worry than domestic inflation.

Greenspan’s typically measured remarks persuaded many traders that the Fed might soon ease the short-term interest rates it controls--catnip for stock and bond markets. On Tuesday, however, bond prices fell, and their yields--which move in the opposite direction--rose as investors couldn’t resist perceived bargains in the stock market. With 30-year Treasury rates already at record lows, there was a feeling that any rate cut by the Fed had already been factored into the equation.

While Tuesday’s stock-market surge reversed most of last week’s losses, it didn’t undo the psychological damage caused by a nearly two-month slide in share prices.

Many analysts doubt that the Fed will vote to cut rates when its policymaking Open Market Committee next meets Sept. 29, believing that the central bank instead will wait to see whether the global situation deteriorates.

Indeed, some observers thought Tuesday’s ebullience was an overreaction.

“We have felt for some time that the Fed would lower rates by the end of the year,” said economist and stock strategist Ray Worseck of A.G. Edwards in St. Louis. “All his speech did was to confirm that our view was not crazy, but I think the markets wanted to read more into it than that.”

The markets have turned extremely volatile in recent days. Of the 36 trading days since the Dow peaked at 9,337.97 on July 17, there have been 19 when the Dow gained or lost more than 1%.

Robert F. Dickey, technical analyst at Dain Rauscher Wessels in Minneapolis, said periods of great volatility “mean uncertainty and very often a direction change.”

In Dickey’s opinion, the stock market is headed back upward, with small-company stocks likely to lead the way. Smaller stocks have dramatically lagged the shares of big blue-chip companies for more than a year. Many investors believe the smaller stocks are well-positioned because many of them are less vulnerable to turmoil in foreign economies.

Meanwhile, the large stocks that make up the Standard & Poor’s 500 index may be headed for further earnings disappointment.

Charles L. Hill, director of research for First Call Corp. in Boston, which tracks Wall Street analysts’ estimates of corporate earnings, said the current quarter could mark the first since 1991 in which the S&P; 500 companies fail to show earnings gains over the previous-year period.

Overseas markets followed strong rallies Monday--which was not a holiday outside the United States--with smaller gains Tuesday.

In Europe, Frankfurt’s DAX index rose 3.7%, Paris’ CAC-40 rose 2.9% and London’s FTSE-100 slipped 0.1%. Tokyo’s Nikkei-225 stock average rose 0.8% after soaring 5% on Monday, and Hong Kong’s Hang Seng index rose 1.4% on top of the prior day’s 7.1% surge.

Follow the performance of stocks, bonds and mutual funds throughout the day on The Times’ Web site. Go to https://www.latimes.com/quote.

* BANK ON IT? Financial institutions still face problems overseas. D1

* INVESTOR PSYCHOLOGY: Wall Street wonders if individual investors remain bullish. D1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Where Gain Ranks (Southland Edition, A1)

Although Tuesday’s gain was the largest point increase in the 102-year history of the Dow Jones industrial average, the 4.98% rally didn’t rank at the top in terms of percentage gains.

BY POINTS

Rank: Increase

1. Sept. 8, 1998: 380.53

2. Oct. 28, 1997: 337.17

3. Sept. 1, 1998: 288.36

4. Sept. 2, 1997: 257.36

5. Nov. 3, 1997: 232.32

****

BY PERCENTAGE

Rank: Increase

1. Oct. 6, 1931: 14.87%

2. Oct. 30, 1929: 12.34%