Dow dives 299 points 3.41 percent drop is among worst in 102-year history Asian crisis spreads fear Stocks fall 160 points in last half-hour of heavy trading

August 05, 1998|By Bill Atkinson and William Patalon III | Bill Atkinson and William Patalon III,SUN STAFF

Stocks were smashed yesterday on fears that Asia's financial crisis is here to stay, and the free-fall of shares chopped more than 160 points off the Dow Jones industrial average in the last half-hour of trading alone.

The Dow average plunged 299.43 points, or 3.41 percent, to 8,487, the third largest point drop in the index's 102-year history. The abrupt downturn in the last half-hour came after an influential market strategist said stocks could fall up to 20 percent this year.

Trading volume yesterday was the second heaviest in the New York Stock Exchange's history, with 850 million shares changing hands. For every share that rose, five fell. Twenty-nine of the 30 Dow stocks fell; only Cincinnati-based Procter & Gamble Co. gained.

The Dow, an index of blue-chip stocks, has fallen 850 points, or 9.1 percent, in the past 12 trading days.

"Ugly," said Andrew M. Brooks, head of equity trading at Baltimore-based T. Rowe Price Associates Inc. "It has been a rough week, and it is only Tuesday."

The market enjoyed a brief bounce upward early in the day, but quickly deteriorated on concerns that the Asian woes were going to sap the earnings of the big blue-chip companies that, over the past few years, have driven the market higher.

That decline turned into a dive late in the day after ardent bull and influential market strategist Ralph J. Acampora, of Prudential Securities Inc., said these blue-chip stocks could drop 15 percent to 20 percent from the Dow's high of 9,338 on July 17.

"Secondary stocks are already in a bear market," Acampora said an interview on CNBC. "My call is that the blue chips will also go into a bear market. It's a bear call."

Investors also were concerned about the political problems dogging President Clinton, whether the new government in Japan will make the tough cuts needed to fix its troubled economy and that the International Monetary Fund is running out of money, meaning it won't be able to help bail out Asia, market observers said.

The sharp decline "has the feel, the smell of a bull market top," said Rob Brown, chief market strategist at Ferris, Baker Watts Inc. in Baltimore. "Certainly, it looks like a major peak, but we aren't going to know for a while."

Shares of banks, brokerage houses, technology and health care companies were hammered.

Chase Manhattan Corp. fell $5.1875, or 6.8 percent, to $69.625; technology bellwether Microsoft Corp. slipped $3.9375 to $104.50; nursing home operator Centennial Healthcare Corp. fell or 49 percent, to a record low of $7.50.

Procter & Gamble gained $1.50 to close at $77.75.

The Standard & Poor's 500-stock index, a broad measure of the stock market, fell 40.32 points, or 3.62 percent, to 1,072.12. The Nasdaq composite index, full of technology stocks, slipped 65.46 points, or 3.54 percent, to 1,785.64.

Gil Knight, a principal at Allied Investment Advisors Inc. in Baltimore, which manages $11 billion in assets, said the market could drop further if earnings slow. But he said he actually expects it to rally for the rest of the week, because many stocks have been so badly beaten since mid-July.

Knight said he is not changing course, but is holding to his investment strategy of looking for good deals on good companies.

Lucent Technologies Inc., for instance, which has slipped 15 percent in the past two weeks to $87 a share, is the "type of stock we want to back up the truck on," Knight said.

Richard Cripps, chief investment officer of Baltimore-based Legg Mason Wood Walker Inc., wasn't too shaken by yesterday's drop because he believes the U.S. economy remains in good shape: Interest rates and inflation are low and consumer confidence high.

"There are two types of corrections: One where the sell-off comes because stocks are too richly valued, and the second where there have been major changes in the underpinnings of the market," Cripps said.

Yesterday's correction came because stocks were too expensive, he said.

Cripps said investors should look here at cyclical stocks -- that is, stocks whose fortunes tend to ebb and flow with the economy. Some worth study: Caterpillar Inc., maker of earthmoving equipment; Deere & Co., tractor maker; Ingersoll-Rand Co., which makes industrial equipment; and Minnesota Mining & Manufacturing Co., which makes everything from Post-It Notes to sandpaper.

"If the market moves sharply lower [today], it will be a very good time to buy stocks," Cripps said.

Bob Freedman, chief investment officer for John Hancock Funds in Boston, said some investors are uncertain that the current seven-year economic expansion -- a record -- can continue.

He believes it can, and he said investors should look at small-capitalization companies -- usually those with market values of less than $1 billion. These small companies have been ignored by the market in favor of the blue chips, even though they typically don't do a lot of business with Asia.

In particular, Freedman said, small-cap technology and health care companies seem to be relative bargains.

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