Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 31, 1994 TAG: 9403310309
SECTION: NATIONAL/INT PAGE: A-1 EDITION: METRO
SOURCE: By CHET CURRIER ASSOCIATED PRESS
DATELINE: NEW YORK LENGTH: Medium
For the first time in 31/2 years, a generation of investors accustomed to prospering in stocks and mutual funds is faced with what looks like a serious market decline.
In the past two months, the Dow Jones average of 30 industrial stocks, Wall Street's oldest and best known indicator, has tumbled 350 points, or about 9 percent.
The stock market continued its plunge Wednesday, with the Dow falling more than 72 points to 3,626.75, bringing its loss for the week so far to nearly 148 points. The skid follows a nearly 121-point loss last week.
Mutual funds, which in recent years have become the most popular way for Americans to put their money to work in the stock market, are now, in many cases, reporting a shift toward redemptions - investors cashing out. That trend, if it persists, could put added pressure on the market.
``To novice investors, this must seem like one perverse stock market,'' says James Stack, who writes an investment letter called the InvesTech Market Analyst.
``Here we are, three years into a recovery with the economic party finally kicking into high gear and no possibility of a recession. And how's the stock market react? It rolls over and plays dead.''
Still, the stock market's early 1994 drop remains modest by the standards of past shakeouts on Wall Street.
In the crash of 1987, for instanIce, the Dow fell more than 22 percent in a single day, and 36 percent over a stretch of eight weeks.
The last certified bear market for stocks, from mid-July to mid-October 1990, knocked 21 percent off the Dow, from just under 3,000 to 2,365.
On the one hand, the situation prompts concern that bond and stock traders may be detecting future economic problems that aren't yet visible to even the expert eye.
On the other, it raises questions about what sort of bear market might hit Wall Street even in the absence of a recession - as happened in '87 and on two occasions in the '60s.
In theory at least, a sudden loss of enthusiasm for mutual funds could jolt the markets by removing a major source of demand for stocks and bonds, even if the producing and consuming economy remains healthy.
Most analysts agree that any drop in stock prices that isn't tied to any major economic problems will likely prove to be temporary.
But that leaves unanswered the question of whether the economy is really as healthy as it has looked lately.
If it is, many analysts argue, it should stand up without much harm to two recent credit-tightening moves by the Federal Reserve, intended as preventive medicine against a resurgence of inflation. ``The inflation fear is overdone, in our view,'' says Carol Stone, an economist at Nomura Securities International in New York.
Among all the possibilities, many Wall Streeters still believe the market is simply undergoing a long-due correction, or temporary rentrenchment that works off excess enthusiasm by instilling a healthy dose of fear.
by CNB