NEW YORK — A new dose of bad news about the U.S. trade deficit helped send a panicky stock market into full retreat Wednesday and dropped the Dow Jones industrial average 95.46 points, its largest one-day point decline.
The fall, which outstripped the record 91.55-point decline, set Oct. 6, brought the key indicator to 2,412.70, down 309.72 points since its Aug. 25 peak. "Disaster may not be too strong a word," said Gene Jay Seagle, chief market analyst at Gruntal & Co., after watching the day's ever-deepening decline.
The close of trading marked the first time since early 1984 that the Dow has receded 10% from its all-time peak. The 11.4% decline since August seemed to lend fresh support to prognostications that the market is due for a setback after the bull market's five-year rampage.
3.8% Loss in Dow
Analysts were quick to note that the decline was nowhere near the severity of the daily percentage declines recorded during the 1929 crash. Wednesday's slide represented a loss of 3.8% in the Dow's value, compared to a record 12.8% loss on Oct. 28, 1929.
The catalyst in the selling panic was the government's report on the U.S. trade deficit for August. It showed that the deficit had narrowed to $15.7 billion in August from $16.5 billion in July, a smaller decline than many analysts had expected. (Trade deficit story on Page 27.)
The news about the trade deficit in turn helped drive down the price of the dollar and U.S. Treasury bonds. The declines drove the yield on the bellwether 30-year Treasury bond above 10% for the first time in two years.
Many on Wall Street have argued that the long buying trend has driven stock prices to levels that are out of line with corporate earnings. The Dow has gained nearly 250% since the beginning of the bull market in August, 1982, when the index stood at 776.92.
The recent rises in interest rates and the weakness of the dollar have added to investors' worries.
Still, a large group of market professionals assert that the decline may be only temporary. They point to predictions of continued strong corporate earnings and contend that the huge cash pools in mutual funds, and the continuing flow of money from foreign investors, will keep the market alive.
Last week's record decline came on a day when trading was relatively light, a fact that encouraged analysts. But Wednesday's New York Stock Exchange volume reached 207.35 million shares, compared to 175.60 million during the Oct. 6 session and 172.87 million in Tuesday's trading.
"As the day got going, it brought out everybody's worst fears," said Eugene J. Peroni, director of technical market analysis at Janney Montgomery Scott in Philadelphia. "The psychology of the market has been very brittle."
On Sept. 22, the market set an all-time record for a one-day gain, advancing 75.23 points amid hope that interest rates would stabilize.
Peroni, who has predicted a major retreat in the market for some time, said analysts in his office are now watching only about 30 stocks that they consider promising, down from hundreds during the peak of the bull market.
Traders said big institutional investors--such as mutual funds, pension funds and insurance companies--did not seem to be buying stocks.
As has become standard in such sell-offs, the decline was worsened by computer-activated arbitrage programs that seek to profit from the difference between the prices of stock indexes and the prices of the underlying stocks. Also a factor were so-called "portfolio insurance" computer programs, which seek to protect big investors by activating orders to sell stocks when their prices begin falling to certain levels.
Such programs tend to accelerate the fall.
All 30 stocks that make up the Dow Jones industrial average fell in price. On the New York Stock Exchange, declining stock issues outnumbered advancing ones by 1,395 to 273.
The Standard & Poor's 500-stock index fell 9.29 to 305.23, while the New York Stock Exchange composite index lost 4.76, closing at 171.26. The Dow Jones transportation average plunged 21.87 points to 1,011.59, its second-largest point decline.
The market's slide did bring joy to some quarters--including one of the market analysts whose pessimistic prediction helped set off last week's selling wave. "We're very happy, very satisfied with what's happened," said Peter Eliades, editor of the Stockmarket Cycles newsletter in Los Angeles. "It's unfolding just as we said."
But Eliades is among those who believe the market will right itself after investors go through a period of "complete surrender to their fear. They've got to say, 'Get me out--at any cost,' and that's what they seem to be doing."
Among the biggest losers were International Business Machines, which fell $3.50 to $145.25; Procter & Gamble, down $4.75 to $94; Merck, the pharmaceutical concern, which fell $7.25 to $191.25; Philip Morris, off $3.75 to $110.625, and Minnesota Mining & Manufacturing, down $4 to $72.50.
The stock of the Big Three auto makers also declined as they reported early October sales figures far below the year-ago figures. General Motors was off $2.375 to $73, Ford fell $3.25 to $92.50 and Chrysler was down $1.75 to $36.
CBS slid $7.25 to $211 although it reported sharply higher income from continuing operations and disclosed that it expects a $177-million fourth-quarter gain from selling its magazine division. The decline may have been aided by the CBS board of directors not making any decision concerning the company's record division, which Sony Corp. has reportedly offered to buy for $2 billion.
One of the few winners was Tenneco, which gained $1.25 to $60.25. It was helped by speculation that the company plans to repurchase 40 million common shares at $75 apiece. Also rising was Macmillan, rumored to be a possible takeover target for British communications magnate Robert Maxwell. Macmillan rose $3.875 to $72.375.