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

DATE: THURSDAY, March 31, 1994                   TAG: 9403310308
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: NEW YORK                                LENGTH: Medium

BABY-BEAR MARKET COULD GROW UP IF TRADERS PANIC

The Dow Jones industrial average's 72.27-point drop Wednesday was part of a broader decline in stock prices over the past several weeks that has left the market at its lowest level since early November.

The descent hasn't aroused any panic or mass selling. On the contrary, the decline has been described by Wall Street professionals as an orderly and understandable response following a prolonged rise that began in 1989.

Some describe the decline as a correction, a term that generally means stock prices will fall about 10 percent to 20 percent from their peak and then start climbing again.

But others are wondering whether the drop isn't a bear market - a prolonged downturn that can unnerve Wall Street and the economy.

Some questions and answers about the stock market's behavior:

What halted the rally in the stock market?

Some market watchers say the defining event seemed to be the Federal Reserve's move Feb. 4 to push up interest rates for the first time in five years to keep inflation in check. The Fed acted to raise interest rates again last week. Higher interest rates - the cost of money - can hurt corporate profits and lead many investors to take their money out of stocks and put them into bonds and other interest-bearing investments.

Are there other possible reasons for a shift in the stock market's behavior?

There are possible reasons, but the market is so enormous that it's hard to attribute market psychology to one particular cause.

Some say the Fed's action created a climate of uncertainty that meant any news would be interpreted as an excuse to sell. Friday, for example, political turmoil in Mexico was cited as a reason for a Wall Street decline. On Tuesday, good news about the economy was seen as a warning of inflation and another reason to sell. Wednesday, analysts talked of investors having been made jittery by Whitewater and political instability.

Some forecasters who base their predictions on historical patterns say prices are artificially high - pushed up by investors getting into the market for the first time - and are just falling back to more realistic levels.

``When you start letting air out of the balloon and there's a lot of pressure in there, it's hard to let the air out gently,'' said David Bostian, an economist at the Wall Street investment firm Herzog Heine Geduld.

What's so bad about a drop in the stock market?

Nothing is necessarily bad about it - J.P. Morgan himself once said stocks will fluctuate. But investors who see their holdings lose value in a declining market can react by selling - making the fall worse. They also can stop spending money and weaken the economy.

``If people who find out you can lose money in the stock market start suddenly panicking, this junior bear market could get worse,'' said Stan Weinstein, a stock market adviser who edits The Professional Tape Reader in Naples, Fla.

``You're either going to have a very bad cold here, or if things get exacerbated you could have pneumonia.''