
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, July 24, 1990                   TAG: 9007240261
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-1   EDITION: METRO 
SOURCE: Los Angeles Times
DATELINE:                                 LENGTH: Medium

WALL STREET RUN SCARED

The stock market has long known that the economy was slowing to a crawl. But on Monday it began to worry that business growth would stop altogether - that the economy would fall into recession, crippling corporate earnings, wiping out jobs and reducing property values.

So Wall Street investors backed away nervously from stocks, and prices tumbled 56 points on the Dow Jones average, after falling more than 100 early in the session.

However, it was a market characterized by a reluctance to buy rather than heavy waves of panic selling. Investors were taking a cue from nervous business owners, said Jerry Jasinowski, president of the 13,500-member National Association of Manufacturers. "The concern among our members is that economic growth will slow even more and they won't be able to make the money to pay their debts."

A better indication of the economy's strength or weakness will come on Friday, he said, when the government reports on economic growth in the second quarter. Recent reports have revealed a sluggish economy: Gross national product grew 1.9 percent in the first quarter, and only 1.1 percent in the last three months of 1989.

Meanwhile, the stock market Monday read deep significance into several factors - including the profits of McDonald's Corp., the giant hamburger chain.

McDonald's reported that profits had increased 10 percent in the second quarter, which ended June 30. But analysts had been anticipating faster growth, so McDonald's report sparked disappointment and the sharp early sell-off in the market. (McDonald's stock fell $3 a share to $33.)

The market's disappointment was particularly acute because analysts and big institutional investors had been seeing McDonald's, which is now opening stores in Eastern Europe and the Soviet Union, as a way to invest in worldwide economic growth. McDonald's profits would be strong even if the U.S. economy were weak, went the thinking. But with Monday's earnings, investors began to doubt.

Wall Street began to worry also that interest rates would go higher, after weeks of believing that rates were headed lower. Reports that government assistance may be needed for guarantors of defaulted student loans added to concern about how much the U.S. Treasury will have to borrow to finance the swollen budget deficit. The Bush administration last week raised its estimate on the deficit to $169 billion - or $231 billion, including the costs of the savings and loan bailout.

"If the U.S. Treasury has to sell even more bonds, investors will demand higher interest rates," explained economist John Silvia of Kemper Financial Services in Chicago.

High interest rates affect the stock market directly: If an investor can get 8.5 percent in a Treasury bond, the potential return on stock investments in a sluggish economy looks less attractive.

Doubts about Federal Reserve Board policy on interest rates also have worried investors. Two weeks ago, Fed Chairman Alan Greenspan cut interest rates slightly. But last week - when the government reported a surprising jump in June consumer prices - Greenspan was ambiguous about further rate reductions.

The real problem, say analysts, is that the economy today is sending mixed messages, a marked contrast to the boom years of the 1980s. Employment growth and consumer spending have been notably slow in recent months. Nationally, conditions are uneven, with industries divided into winners and losers and some large geographic areas fighting full-blown downturns.

by CNB