Stocks Fall Broadly on Fears Over Brazil, Clinton
President Clinton’s impeachment trial and Brazil’s currency devaluation triggered more losses on Wall Street on Thursday, amid continued trading snafus in what has been the market’s hottest sector--Internet stocks.
The Dow Jones industrial average lost 228.63 points, or 2.5%, to 9,120.93. It was the fourth straight loss since the index hit a record 9,643.32 last Friday.
Exactly as on Wednesday, the Dow was off 260 points at its low before pulling up, though Thursday’s final loss far exceeded Wednesday’s 125 points.
The Nasdaq composite index ended near its low for the day, down 1.7%.
Most other world markets also slid, with Brazilian stocks down 10% after falling 5.1% on Wednesday, as interest rates soared further following the government’s decision Wednesday to devalue the currency, the real, by 8%.
The real itself was unchanged at 1.32 to the dollar as the central bank sold reserves to defend it. But Standard & Poor’s Corp. cut Brazil’s credit rating one notch, as many analysts predicted a deeper devaluation is inevitable as the country’s dollar reserves dwindle and its economy stumbles.
Among other Latin markets, Argentine stocks slumped 4.4%. Mexico’s market, however, managed a 1.7% rise amid bargain hunting, even though the peso slipped further, to 10.64 per dollar.
In Asia and Europe, markets also were lower, but the losses were fairly limited. German stocks eased 0.4%; Singapore shares fell 2%.
Brazil’s dire outlook, following its surprise devaluation, weighed heavily on investors. But traders said some also seemed spooked as the Clinton trial began.
“We’ve managed to ignore impeachment as long as it’s been an issue,” said Arthur Hogan, market analyst for Jefferies & Co. in Boston. “But the second the opening speech began [in the Senate], the Dow started a 150-point fall.”
Treasury bonds, meanwhile, rallied strongly for a third day amid a continuing “flight to safety” and news that last year’s consumer inflation rate was the lowest in 12 years. The benchmark 30-year T-bond yield slipped to 5.06% from 5.13% on Wednesday.
Financial stocks were among Thursday’s losers, as investors feared that Brazil’s problems would lead to more loan losses. J.P. Morgan slid $4.69 to $101.87, Citigroup was off $1.31 to $50.88 and BankAmerica shed $2.94 to $62.50.
Major tech shares also were weak. Intel slid $5.25 to $133.75 and Apple tumbled $5.13 to $41.38.
But trading volume on the New York Stock Exchange dropped to 797 million shares, down 15% from Wednesday, suggesting that selling pressure could be ebbing.
What’s more, the broader Nasdaq market showed surprising strength. Nasdaq losers outnumbered winners by a ratio of just 21 to 18, while the ratio was more than 2 to 1 on the NYSE.
Some overlooked smaller stocks have been perking up lately, Hogan noted, but he said it was too early to say if it’s a trend.
At the same time, Internet stocks--whose one-day surges of 50% or more have supplied most of the glamour in the market’s new year--have stalled in the last few days, as analysts at Jefferies, Deutsche Bank Securities and Morgan Stanley Dean Witter all have issued downgrades of some issues.
Broadcast.com slid $16.13 to $153.88 on Thursday. Yahoo dropped $24.06 to $343.94.
The frenzied trading of Internet shares recently has led to technical problems at the online brokerages used by the most avid players.
Some problems have resulted from computer systems’ being flooded beyond capacity with transaction orders, but others stem from a lack of liquidity in some Internet stocks--the inability of buyers to find sellers and vice versa at an agreeable price.
Online traders who gather in Internet “chat rooms” such as the Silicon Investor have been complaining vehemently about delays, botched executions and other snafus in recent days.
The problems seem to affect many, if not all, of the online brokerages, including such leaders as Ameritrade Holding, Charles Schwab and E-Trade.
“We can confirm that especially over the last week our system has been continually tested and stretched,” a Schwab spokesman said, referring to the firm’s Schwab.com Internet site.
“Everybody’s challenged,” he added. “You don’t build your church for Easter Sunday.”
Schwab now handles up to 200,000 trades daily at its brokerage offices, over the telephone and via the Internet--compared with about 110,000 trades a day a year ago, the spokesman said.
At Ameritrade, investors “may have experienced delays” in logging on to the Internet site around market openings and closings recently, a spokeswoman said. She added that once customers get onto the site, there have been few problems getting trades executed.
Ken Pasternak, chief of trading firm Knight/Trimark, said the real issue is not capacity but liquidity.
Huge order imbalances--vastly more “buy” orders than “sell” orders, for example--often develop when thousands of traders seize on the same piece of news they read in an online chat room or hear on TV, Pasternak said. “Fills [executions] can be delayed for multiple minutes,” he said.
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For Markets, Another Tough Day
Most global stock markets stumbled again on Thursday amid mounting pessimism over Brazil’s economic fate. On Wall Street, Internet-related stocks were mostly lower for a third straight day, after soaring to record highs on Monday. Latin American markets’ declines year-to-date are compounding serious losses recorded in 1998.
Internet Stocks’ Pullback Deepens
Declines in key Net stocks from their recent highs:
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Thurs. Decline from Stock close recent peak Broadcast.com $153.88 -47% Lycos 85.75 -41 Amazon.com 138.00 -31 EBay 225.31 -30 Broadcom 135.94 -29 Geocities 61.88 -25 Go2Net 106.75 -25 Yahoo 343.94 -23 America Online 144.50 -13 S&P; 500 index 1,212.19 -5%
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Latin Markets’ Losses Grow
1998 and year-to-date changes in key stock indexes, in local currencies
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1998 Year to date Venezuela -44.7% -14.0% Argentina -37.5 -20.8 Brazil -33.5 -25.5 Mexico -24.3 -15.2 Chile -22.6 -12.7
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*Source: Bloomerg News
