Dow falls 78 in cascade of bad news

October 10, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- With bad news cascading like ticker tape, Wall Street suffered through another dreadful session yesterday as the Dow Jones industrial average crumbled 78.22 points, to 2,445.54.

Disconcerting reports on the budget, the Middle East, corporate earnings, oil prices and inflation provided a bleak backdrop for the stock prices of companies in almost every industry.

Of the 30 stocks in the Dow index, only one closed higher for the day: Boeing Corp., up 50 cents to $44.375.

Boeing was the rare stock able to benefit, for a moment, from the financial markets' malaise. Early yesterday the board of directors of United Airlines parent, UAL Corp., rejected an employee buyout because of problematic financing -- and indicated the carrier probably would proceed with a large aircraft order.

But for other companies, the current gloom in the economy and the markets appeared only to prompt concern about their own prospects.

UAL closed down $3.25 at $88, off almost $200 since last fall.

Insurance companies, among the largest holders of investments in securities and real estate, were down broadly. Travelers dropped $1.375, to $13; Aetna $1.625, to $30.375; Cigna $1.125, to $34.125; and USF&G $1.125, to $14.25.

On the New York Stock Exchange, declining issues led advancing ones by 4-to-1. Prices began falling at the opening bell and slid steadily throughout the session.

The market "was never going up," said Ralph Evans, a specialist on the floor with Stern Bros. "It was one of those erosion-type days, and the erosion got pretty heavy."

Unlike some sessions with notable declines, however, there was little evidence of panic, and overall activity was lethargic. Volume on the New York Exchange was a modest 145.6 million shares.

"It was eerily quiet," Mr. Evans said. "Fear wasn't in the air, as perhaps it ought to have been, given the magnitude of the decline we have had in the past three months."

As recently as July, the Dow approached 3,000. To the traders and analysts living through the recent decline, that level now appears part of a different era.

In early July, the cost of a barrel of oil was in the mid-teens. Yesterday, it reached a record high as oil futures prices on the New York Mercantile Exchange closed at $40.40.

The prospect of higher energy costs and higher inflation was particularly unsettling, since it was accompanied by a disconcerting third-quarter earnings report by Motorola Inc. which ended the day down $7.25 at $52.50. The decline had a ripple effect on other issues, said William LeFevre, market strategist with Advest Inc., on the theory that "if they are off, what's going on with everyone else? Worse."

Even stocks that have registered strong earnings gains and have stable products were hammered in yesterday's rout. The two Dow stocks most severely affected were Merck, down $3.25, to $75.125; and Procter & Gamble, down $3.125, to $76.875.

Their decline, Mr. LeFevre said, suggested "a total desertion of confidence." Given the quality of these and other companies, he suggested the problems with their share prices would be temporary, but optimism is not universal.

"They are starting to take the good stocks out and shooting them," said Richard Fontaine, a money manager who heads Fontaine Associates in Baltimore. "The danger is people who thought they had a safe haven . . . will find over the next two months they don't.

"I think we're now in a good old-fashioned bear market of major magnitude. What drives valuations in the stock market is the level of certainty about the future. How comfortable are you about future earnings.

"Nothing undercuts that more than war, a recession, lack of leadership in Washington, and the likelihood of higher inflation because of higher oil prices. You could not come up with a worse set of factors."

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