The stock market, spooked by falling Asian markets and warnings of lower U.S. corporate profits, went into a free fall yesterday before staging a dramatic upturn that trimmed losses by two-thirds.
The Dow Jones industrial average, the closely watched index of 30 blue chip companies, fell nearly 270 points before rallying to close at 7,756.29, down 90.21 points, or 1.1 percent.
Volume on the New York Stock Exchange exceeded 782 million shares, the second heaviest day of trading in history. More than 1 billion shares exchanged hands on Oct. 28, 1997, when the Dow surged 337.17 points.
Experts said the quarterly expiration of stock index futures, options on those futures and common stock options, known as the "triple witch," also helped send the market careening.
But they put most of the blame on Asia.
"Everybody is scared over the foreign markets, everybody is more scared over corporate earnings," said George Jennison, managing director of Nasdaq trading with Richmond-based Wheat First Butcher Singer Inc. "Here you have a lot of other
companies pre-announcing more conservative [earnings] outlooks. The Asia situation kind of goes hand in hand with earnings."
Adding to the jittery climate was the overnight plunge in several key Asian stock markets.
Japan's Nikkei 225 index dived 5.24 percent after a large foodstuffs trading company filed for bankruptcy; South Korea's benchmark -- the Korea composite index -- sank 5.1 percent; and Hong Kong's Hang Seng index fell 3.24 percent. The problems overseas have affected many large U.S. companies, which are expecting lower Asian sales to depress profits. Athletic footwear and apparel maker Nike Inc. and Minnesota Mining & Manufacturing Co. issued warnings this week that fourth-quarter earnings would suffer.
"What we have got is a re-emergence of the Asian contagion," said Robert Brown, chief market strategist at Ferris, Baker Watts Inc. in Baltimore.
The Dow industrials were punished far worse than the other major U.S. indexes.
The Standard & Poor's 500 stock-index fell 8.52 points to 946.78. The Nasdaq composite index, which has a number of large, well-known technology and health care companies, rallied from a loss of 39 points to close at 1,524.74, up 1.55.
Among other broad market indexes, the Russell 2,000 index of small capitalization stocks slipped .32 to 420.03; the Wilshire 5,000 index of stocks on the New York, American and Nasdaq stock exchanges dropped 64.88 to 9,043.11; the American Stock Exchange composite index lost 4.19 to 660.68; and the S&P 400 mid-cap index lost 1.32 to 320.26.
The Dow began sliding from the open of trading at 9: 30 a.m. and it sailed downward with barely an interruption until it bottomed shortly after 11 a.m. at minus 269.04 points.
The market hasn't been helped by dreary remarks from Wall Street strategists Ralph Acampora of Prudential Securities Inc. and Barton Biggs of Morgan Stanley, Dean Witter, Discover & Co. experts said.
Acampora has been one of the leading bulls on Wall Street, but this week he reversed himself, saying stocks could fall by more than 20 percent next year.
Acampora predicted earlier in the year that the Dow could hit 10,000 by June 1998. Now, he's calling for it to reach that level sometime in 1999.
Biggs, a noted bear, sees stocks falling by as much as 30 percent next year.
"That is just a normal cyclical bear market," Biggs told CNBC, the cable business news station, yesterday.
Biggs expects Japan to go into a recession and problems to continue in Asia unless serious steps are taken.
"Before it is over, they have got to really get serious," he said.
A number of countries such as Thailand, Malaysia and Indonesia have reduced the value of their currencies. Biggs believes that those moves could force China to devalue the yuan, which could mean a surge of cheaper goods into the United States.
"When you get these kind of spellbinding statements what it does is make everybody cautious," Brown said.
"It seems that we have been taking one step forward and two steps backward. It is very difficult to make money."
Nike Inc. stock rose 12.5 cents to $40.125, but is down 33 percent this year amid concern that teen-agers are turning away from sneakers in favor of hiking boots and casual shoes.
3Com fell 50 cents to $32.625 after reporting that earnings fell 91 percent in its second fiscal quarter, hurt in large part by slowing sales in Asia.
AT&T Corp. rose $2.1875 to $61.3125 and International Business Machines Corp. rose $2.125 to $102.125, helping the Dow pare its losses.
Among Nasdaq stocks, Intel Corp. gained 87.5 cents to $70 and Applied Materials Inc. gained $1.875 to $30.
Microsoft Corp. fell $2.1875 to $128.6875 after the Wall Street Journal reported that the U.S. Justice Department's hiring of David Boies, an antitrust litigator, could lead to a broadening of the government's antitrust case against Microsoft.
Pub Date: 12/20/97