Dow closes up 9 after wild ride

April 01, 1994|By Joel Obermayer | Joel Obermayer,Sun Staff Writer

The Dow Jones industrial average took investors on another roller coaster ride yesterday, rising and falling and rising and falling before closing slightly up for the day.

Market watchers warned that more dizzy days could lie ahead.

The Dow closed at 3635.96, up 9.21 points on the day, but down 139 points for the week. The index had fallen as much as 67 points by late morning. Decliners led advancers on the New York Stock Exchange by a 2-to-1 margin yesterday. The broader S&P 500 fell more than 9 points before ending the day up 0.22. It closed down nearly 15 points on the week.

"A lot of blood was spilled on the Street this week," said Lance Zipper, head of over-the-counter trading at Kidder, Peabody & Co. in New York.

Nervousness in equities affected other markets as well. Gold, a haven in times of market turmoil and rising inflation worries, was also helped by political unrest in South Africa, and closed at $391.80 on the New York Commodity Exchange, up $5.70 from Wednesday's close.

The dollar also slid against major currencies.

The sixth day of market turmoil put the White House on edge. Thursday morning, Vice President Al Gore said in a television interview that the stock market's move was out of step with the country's economic fundamentals.

By 3 p.m., even President Clinton stepped in to try to calm investors.

"No one believes that there is a serious problem with the underlying American economy. It is healthy and it is sound," Mr. Clinton said after a bill-signing ceremony in Washington. "There's no reason to overreact."

Pressure in the markets could build further today after the government releases the nation's unemployment statistics for March. Good unemployment statistics could mean a rough Monday as investors, unable to trade as the markets are closed for Good Friday, will have a three-day weekend to stew over things.

The wild ride on Wall Street, which has brought the Dow down 7 percent from its all-time high reached on Jan. 31, got its start in early February when strong economic growth pushed the Federal Reserve to raise interest rates for the first time in five years. Since then, the stock markets have been taking their cues both from Fed Chairman Alan Greenspan and long-term interest rates in the bond market.

A strong short-term economic picture can lead to long-term jitters over inflation, which leads to an increase in interest rates. The combination typically hurts equities as money flows back into fixed-rate investments and rising prices and increased borrowing costs pinch corporate profits.

"The more the economy grows, the more it sucks money out of the stock market," said Richard H. Fontaine, portfolio manager for Towson-based Fontaine Capital Appreciation Fund.

Mr. Fontaine predicted that this week's market ride was the beginning of a full-scale bear market, with the Dow dropping as much as 25 percent from its recent highs.

But many fund managers said the correction was a normal product of rising interest rates.

Chip Carlson, a mutual fund manager with the Greenspring Fund in Lutherville, said he did not expect a big meltdown Monday.

"I think the lesson people have learned is that after the market has corrected 300 points is not a good time to sell their stock or mutual fund," he said.

Thursday's gyrations may have been exacerbated by fund managers trying to clean up their portfolios at the end of the quarter, Mr. Carlson said.

A buying spurt after the opening bell yesterday pushed the Dow ZTC up 20 points in the first few minutes of trading. That halted, however, after a report from the Purchasing Manager Association of Chicago, showed strong growth in new orders and employment, raising fears of inflation.

The association's March manufacturing index rose to 66.5, compared with 60.3 in February.

The index, taken from a survey of Chicago purchasing managers, is the first major indicator of how the economy fared in March. Stronger economic activity usually brings inflation with it and the message was not lost on the bond market. Long-term interest rates surged, unleashing a wave of sell orders in the stock markets.

The yield on a benchmark 30-year Treasury bond rose to 7.19 percent, the highest in a year, before easing off to close at 7.08 percent, down two basis points, or two-hundredths of a percentage point, from its close on Wednesday.

With interest rates pushing higher, the Dow had fallen 67 points by 11 a.m., causing the New York Stock Exchange to invoke its "circuit breaker" rule, which halts computer-guided sell orders after the Dow falls more than 50 points.

It was the fourth time in three days that the circuit breaker has kicked in.

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