Wall Street tumbles Asia continues plunge

Markets close early as benchmark Dow declines 554 points

'We collapsed today'

Money managers lead sell-off

individuals don't repeat '87 panic

October 28, 1997|By Jay Hancock | Jay Hancock,SUN STAFF

The stock market plunged yesterday, slashing billions from the value of corporate America, breaking volume records and forcing trading to be shut down on the New York Stock Exchange for the first time since 1981.

Pushed over the edge by economic turmoil in the Far East and by more stock dives in Hong Kong and Europe, the Dow Jones industrial average fell by 554.26 points to close at 7,161.15.

By last night -- this morning on the Asian markets -- a vicious cycle was developing, with Hong Kong, Tokyo and other markets reacting to the Dow's plunge with more heavy selling. That news appeared likely to affect U.S. traders this morning.

Yesterday's fall was the Dow's biggest one-day point decline ever, eclipsing a 508-point plummet that came on "Black Monday" a decade ago this month.

In percentage terms, the 30-stock index fell 7.2 percent, nowhere near Black Monday's swoon of 22.6 percent but still the biggest one-day drop in a decade and the 12th largest overall.

"I think we collapsed today," said John F. Snyder III, manager of the John Hancock Sovereign Investors mutual fund in Boston. "Any time you have a move of this magnitude, you get people to panic. Probably portfolio managers panicked more than individual investors."

The fall is likely to prompt new debate about computer-program trading, which participants said was responsible for at least some of the pain yesterday. And it virtually eliminates the possibility that the Federal Reserve will raise short-term interest rates soon, analysts said.

Traumatic though it was, the collapse came after years of almost continuous appreciation in stock prices, and yesterday's close places the Dow where it rested only five months ago. For the year, the Dow is still up 11 percent.

"When you have a market that's done as incredibly well as this one has for the last three years, valuations tend to get extended," said Dave Donabedian, senior vice president with Rothschild/ Pell/Rudman, a Baltimore money-management firm. "Sometimes it only takes a catalyst to produce a market correction." Trouble in Asia, he said, "is an excuse to sell."

The drop triggered two circuit breakers on the New York Stock Exchange that had never been set off since they were put in place after the 1987 sell-off.

Under the rules, stock sales must stop for half an hour whenever the Dow falls 350 points in one day. They must stop again -- for an hour -- when the loss reaches 550 points. The Dow blew through both barriers yesterday, the first at 2: 35 p.m., the second at 3: 30 p.m.,when only 30 minutes remained until the regular 4 o'clock close. It was the first time stock trading had been halted since President Ronald Reagan was shot in 1981.

The damage was bad enough that Clinton administration officials felt obliged to issue reassuring statements.

"It is important to remember that the fundamentals of the United States economy are strong and have been for the past several years," said Treasury Secretary Robert E. Rubin. "And the prospects for continued growth, with low inflation and low unemployment, are strong."

Clinton spokesman Mike McCurry called the drop "a bare fraction of major breathtaking drops in the past" and no reason to panic.

The Dow has fallen 13.3 percent from its record high on Aug. 6 of 8,259.31. That's the first downturn of more than 10 percent in seven years, the longest such streak since the 1960s. A bear market is commonly defined as a drop of 10 percent or more.

Yesterday, Standard & Poor's 500-stock index tumbled 64.65 to 876.99, a loss of 6.9 percent. The Nasdaq composite index, packed with technology companies that are especially exposed to Asian economic problems, fell a record 115.44 points, or 7 percent, to 1,535.48.

The decline was so widespread that only 158 of the 3,397 stocks on the NYSE showed a gain. In the S&P 500, only one stock advanced: Apple Computer Inc.

Volume on the New York Stock Exchange came to 685.50 million shares, the busiest day in its history.

For all the activity, Wall Street's gears and chains seemed to work well. And individual investors remained calm, brokers said.

"Comparing this to '87, I'd say people are more relaxed and good- natured," said Michael D. Marcaccio, an investment specialist in the Baltimore office of Charles Schwab, a brokerage.

"To paraphrase an old movie, 'All Quiet on the Eastern Front,' " said Chris Yanson, a broker in the Towson office of Edward D. Jones. "We haven't had any panic calls. I've been entering [buy] orders all along."

Most selling yesterday apparently was coming from professional money managers, traders said, including many relying on computer programs.

At T. Rowe Price Associates Inc., the big, Baltimore-based mutual-fund house, buying and selling action "was not heavy in any one direction," said spokesman Steven Norwitz. Precise figures on cash inflow or outflow weren't immediately available, he said.

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