Troubles abroad sink U.S. stocks Russian economy drives down Dow down 357 points or 4.19%

Third-largest loss ever

Problems in Japan also contribute to panic sell-off

August 28, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Stock markets around the world were jolted yesterday by Russia's failing economy and rumors of President Boris N. Yeltsin's resignation, which sparked near-panic selling of stocks.

Those fears were compounded by concerns that a plan to bail out Japan's troubled economy has hit a wall, and that American banks and corporations will suffer if both countries don't resolve their problems soon.

The Dow Jones industrial average slid 357.36 points, or 4.19 percent, to 8,165.99, marking its third-largest point loss in history.

The closely watched index -- made up of some of the best known companies in the world -- has slipped 12.5 percent from its July 17 high of 9,337 points.

For the year, the Dow is up just 3.26 percent, an anemic number after several years of double-digit gains.

The decline swept through much of the market. The Standard & Poor's 500 stock index, a much broader measure of the market, fell 41.68 points, or 3.84 percent, to 1,042.51 points. The Nasdaq composite index, home to many high-technology and health care companies, plunged 81.72 points, or 4.62 percent, to 1,686.41. Its decline was equal to about 449 points on the Dow.

"The bull may be on the ropes, but the bull market is not down or out quite yet," said Alan Ackerman, market strategist in New York at the brokerage Fahnestock & Co.

On the New York Stock Exchange 936 million shares traded hands, and for every stock that rose, nearly eight fell.

The bull market has been kept alive by big stocks such as Coca-Cola Co., Cisco Systems Inc., and Citicorp, all of which were hammered yesterday in the rout that began when stocks started trading on the Big Board at 9: 30 a.m.

The Dow slid 138 points in the first 15 minutes of trading. It mustered a weak rally, but lurched lower, falling 240 points shortly after 11: 00 a.m. Then it plunged on a 15-minute selling spree that took it down 353 points. Toward day's end, it mounted another rally, but it was short-lived and the rout continued until the closing bell.

"It was ugly," said Rob Brown, chief market strategist at Ferris, Baker Watts Inc. in Baltimore. "I have had calls from people all over the country and they are upset. People are losing money."

Russia's worsening economic crisis triggered yesterday's decline, stock market experts said. The country has defaulted on its debt, its currency is collapsing, and Yeltsin recently fired his Cabinet. His future is uncertain as he is facing growing opposition.

Yesterday, rumors swirled that Yeltsin had resigned, but his press secretary quickly dismissed them.

Russia's crisis is set against a backdrop of severe economic problems in Japan and other Asian countries. Japan, the world's leading exporter, is in recession and its government has undertaken a massive overhaul of its economy, which yesterday appeared to be stalled. That made matters worse for the stock market, experts said.

"The world is spinning all too fast," Ackerman said. "We have seen so many changes in direction in economies and currencies almost overnight."

Brown said he received calls yesterday from clients who were watching television footage of Russians standing in long lines outside of their banks desperately trying to get cash.

"It reminded you of what your grandparents went through" in the Crash of 1929, he said.

Although it is not an economic power, Russia is a key country because it represents business opportunities for many large American countries as well as investors.

"It is a country with a lot of people, nuclear weapons, and tremendous natural resources," said Barry Berman, managing director of equity trading at Robert W. Baird & Co. in Milwaukee. "Without a functioning government, you have no control over all of those things."

Companies that do business with Russia were clobbered. Shares of J. P. Morgan & Co. fell $13.1875, to $104.75; Citicorp's stock dropped $11.875, to $122, and Chase Manhattan Corp. fell $6.125, to $55.125. All of these large banks have loans to Russian entities.

Shares of Coca-Cola Co., the world's largest soda maker, fell $4.437, to $74.75, on fears that economic problems in Asia and Russia could spread to Latin American markets, and hurt its profits.

Experts expect to continue to see violent swings in the stock market in the months to come. Some say the best place to invest money is in big companies, such as Intel Corp., International Business Machines Corp., and Walt Disney Co.

"Stay with the big names," Brown said. "You always want to trust the big-cap, liquid names."

Others advised investors to keep cool.

"You do not want to reassess your investment strategy currently. You really shouldn't try and rejuggle the mix" of your portfolio, said Satya Pradhuman, director of small-cap research at New York-based Merrill Lynch & Co. "If you are terribly uncomfortable, maybe you were too aggressive initially in your allocations."

Despite the turmoil, Stuart Freeman, chief equity strategist at St. Louis-based A. G. Edwards & Sons Inc., remained optimistic. He said the domestic economy continues to hum along and he expects corporate earnings to strengthen in the fourth quarter.

"I think a lot of investors will be thinking: 'Why were we so panicked in August?' " he said.

Dow's big losses

The Dow Jones industrial average had its third-worst point drop yesterday, but the decline was not even close to being among the largest percentage drops. In terms of points lost, here are the 10 worst days for the average, including the percentage change in value.

Date ......... Points .. Pct.

10/27/97 ..... 554.26 .. 7.2

10/19/87 ..... 508.00 .. 22.6

Yesterday .... 357.36 .. 4.2

8/4/98 ....... 299.43 .. 3.4

10/15/97 ..... 247.37 .. 3.1

1/9/98 ....... 222.20 .. 2.8

6/15/98 ...... 207.01 .. 2.3

7/23/98 ...... 195.93 .. 2.1

6/23/98 ...... 192.25 .. 2.5

10/13/89 ..... 190.58 .. 6.9

Pub Date: 8/28/98

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