Stock market investors took an awesome beating Thursday as the Dow Jones industrial average plummeted by a record 86.61 points amid widespread worry that interest rates would reverse themselves and start heading up.
The nose dive in the Dow average to a level of 1,792.89 shattered the previous record for a one-day decline of 61.87 points, set on July 7 this year. It also represented a stunning reversal from only a week earlier when the closely watched index of blue-chip stocks had soared to a record high of 1,919 points, prompting gleeful speculation that the Dow might sail past the 2,000 mark.
With institutional investors such as banks, mutual funds and pension managers scrambling to sell their shares before prices fell even further, a record number of shares changed hands on the New York Stock Exchange. Trading volume there reached 237.57 million shares, surpassing the previous high of 236.57 million set on Aug. 3, 1984.
Investor Losses Stunning
Although the drop in the Dow was a record breaker, it paled in percentage terms against the stock-market collapse of Oct. 28, 1929, that preceded the Great Depression. The Dow collapse on Thursday represented a 4.6% decline, considerably smaller than the sharp 12.8% one-day decline in 1929.
For the Record
Los Angeles Times Saturday September 13, 1986 Home Edition Part 1 Page 2 Column 1 National Desk 1 inches; 29 words Type of Material: Correction
A chart in Friday editions of The Times gave an incorrect date for the seventh-busiest day in history on the New York Stock Exchange. The correct date is Feb. 28, 1986, when 191.66 million shares changed hands.
Even so, investors' losses Thursday were stunning. In a single day, they lost a total of $110.82 billion in the value of their stocks, according to measurements prepared by the Santa Monica investment firm of Wilshire Associates.
All 30 of the stocks that make up the Dow Jones industrial average declined. On the New York Stock Exchange, 10 stocks declined in value for every stock that rose.
The broad decline in stock prices reflects growing unease over the direction of the economy and a spreading concern that interest rates are about to move up, analysts said.
Many investors appeared to be losing faith that the Federal Reserve Board would take steps in the near future to relax its credit policy and reduce interest rates still further. Such concerns were reinforced when Germany's central bank failed to lower interest rates in that country. Many analysts believe interest rates in the United States won't continue to drop unless rates also fall in Europe and Japan.
Michael Metz, a market analyst with Oppenheimer & Co. in New York, said that inaction by Germany had a tremendous effect on the market because "there is a lot of uncertainty about what the outlook for the economy is. Some say they expect a strong upsurge and others say we are on the brink of recession."
However, Metz called the sell-off "excessive. We may have the flip side and see people be willing to step in and buy over the next few sessions," he said.
Aggravating the decline was computer-generated "program trading." These trades, which involve hundreds of stocks and millions of dollars, are triggered automatically by price disparities between the stock market and the market in futures contracts that are based on stock indexes.
Within 10 minutes after the market opened for trading Thurs day, the Dow index was down 20 points below its closing level on Wednesday. It was down by more than 40 points after the first three hours of trading. Its decline was steady, dramatic and unrelenting.
"I've been in the business for 12 years and this is the biggest and quickest drop I've seen. It's amazing," said Stephen Butler, Western regional trading manager for Security Pacific Bank in Los Angeles.
Butler said that early selling was led by large institutions, but later in the day individual investors had jumped into the selling spree. Before the market closed "there were buyers coming in looking for bargains," Butler said.
Few Stocks Unscathed
Few stocks emerged unscathed. International Business Machines Corp. fell nearly five points, Minnesota Mining & Manufacturing Co. nearly six, and Exxon Corp. almost four. CBS Inc. fell $5.50 after news of a management shake-up dashed speculation that the company might be sold.
The market stampede was also fueled by speculation that retail sales in August were stronger than expected, said Newton Zinder, a market analyst with the E.F. Hutton & Co. Inc. investment firm in New York. The U.S. Department of Commerce is to release the figure today and it was rumored to show that retail sales gained by 2% last month, more than the 1.5% most economists expected.
While stronger retail sales would signal a stronger economy, Zinder said many feared it would also spell the end to the recent decline in interest rates.
"As the economy improves, rates will rise and this is very hurtful to the stock market," said Larry Wachtel, a market analyst with Prudential-Bache Securities Inc. in New York. Wachtel said much of the trading was "simply mechanical . . . related to professional sales programs," but he said the "intellectual reasons" for the stock market sell-off was concern about a rise in interest rates.
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