Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, July 24, 1990 TAG: 9007240100
SECTION: BUSINESS PAGE: A3 EDITION: EVENING
SOURCE: From wire and staff reports
DATELINE: NEW YORK LENGTH: Medium
The average dropped more than 100 points in the first 90 minutes, recouped part of the loss and then yo-yoed through much of the day in heavy trading. It finished down 56.44 points, or 1.9 percent, at 2,904.70.
Brokers said catalysts for the plunge ranged from a rash of disappointing corporate earnings, to revived fears of higher interest rates, to continued anxiety over the federal deficit.
Strategists called the volatile selloff a scary reminder of weaknesses in the market that also surfaced Friday, when the Dow average fell abruptly after a long run-up.
"I've been expecting a correction. I anticipate this is part of that correction," said Lawrence Helfand, a senior economist with the Rodman & Renshaw investment firm in Chicago. "There's lots of negative news around, with no real reason to anticipate any positive news."
It was a sharp turnaround in psychology from last week, when the nation's most widely followed measurement of the stock market came close to breaking the 3,000 mark.
Monday's loss was the worst one-day point drop since a 77.45-point decline Jan. 22. Broader market indices also fell.
Although worrisome, the drop did not seem to presage a crisis on the magnitude of the crash of October 1987 or the mini-crash of October 1989.
"It's the kind of shakeout we've had before," said Robert Farrell, chief market analyst for Merrill Lynch & Co. in New York. "I don't think it's the start of a really big decline."
In Roanoke, the skid brought calls from curious customers, but comparatively few investors were taking advantage of the dropping prices, area brokers reported.
"It's kind of a non-event," said Dean Penley, manager of J.C. Bradford & Co. in Roanoke. The market has had so many big swings that customers are somewhat hardened, he added.
Institutional program traders rather than individual investors were driving the market, the area brokers said. Their trading volume was no greater than any other Monday.
At the A.G. Edwards & Sons local office, the main reaction was customers stopping orders, directing a sale when the stock price dropped below a certain level, said Everett Hurst, a broker. When one customer's stock dropped from $26 a share to $24, Hurst sold. The price went to $22 and then came back to $24 later in the day, he said.
Some speculative traders were selling, "but most long-term investors feel like they've been here before," said Steve Williams, vice president and branch manager at PaineWebber.
Clients have been wondering if the prices are cheap enough to buy, he said. When corporate earnings of some companies dropped "less than expected, they've been taking them out back and shooting them," Williams said.
John Parrott of Wheat First Securities said that "speculative stocks with hot runs have been knocked down but those with strong trading records have held on."
The market was sickly Friday, Parrott said, and it opened with sell programs. If the market is deteriorating, it happens on Friday or Monday, he said.
Penley of J.C. Bradford said he'll be thankful "when the regulators give the market back to the public" from the program traders' control. However, he sees "too much vested interest by a lot of Wall Street brokerage houses to give up program trading" by computer.
Many attributed the volatility in stocks to the use of high-volume computerized strategies known as program trading, which critics say can severely exaggerate price movements. Program selling aggravated the big slide early in the day that took the Dow average down about 107 points.
That sudden drop caused a similar decline in the stock-index futures market, where traders bet on the direction of stock prices by buying and selling contracts based on market indexes. The futures market drop activated a "circuit breaker" that briefly halted trading in the Standard & Poor's stock-index futures contract in Chicago.
Editor George Kegley contributed to this report.
by CNB