NEW YORK — Defusing the atmosphere of panic that has afflicted investors for days, the stock market on Wednesday staged a broad, powerful rally that featured the second record one-day point gain in a row for the Dow Jones industrial average.
After rising Wednesday by 186.84 points to close at 2,027.85, the Dow average has in the last two days recouped nearly three-fifths of Monday's epochal 508-point collapse. The widely followed market indicator had rallied Tuesday by 102.27 points.
In contrast to Tuesday, when the vast bulk of stocks continued their steep slide despite rallies among blue-chip shares, Wednesday's gains spread to the American Stock Exchange and the over-the-counter market. On the New York Stock Exchange, advancing stocks outstripped declining ones by a ratio of 8 to 1.
The market's action created some sense that the worst is over. "I think we've made a very significant low," said Michael Metz, market strategist for the investment firm of Oppenheimer & Co.
Yet many among Wall Street's legion of exhausted professionals did not view Wednesday's move as a sign that the market's wounds are healed. Instead, they regard the rebound as a possibly short-lived bounce back from the market's catastrophically lower levels.
"This is a pretty tentative market," said Eugene D. Peroni, a market strategist for the Philadelphia investment firm of Janney Montgomery Scott. "Many people still feel there's something quite ominous out there."
Precedent for Strong Rally
Others expressed concern that the shock of Monday's debacle among investors could long outlive any intervening rallies. "Nobody knows for sure what's going on because nobody's seen anything like this before," said Joseph D. Feshbach, technical analyst for the firm of Prudential-Bache Securities. "You still have to see whether you really did lose the current generation of investors."
Moreover, history shows that strong rallies often follow decisive stock crashes: On Oct. 30, 1929, just after the stock market's two worst days prior to Monday, the Dow industrials registered a 12.34% gain, still its third-largest ever. Wednesday's 10.1% rally is the Dow's fifth largest one-day percentage gain.
Besides the Dow industrials, the Standard & Poor's index of 500 institutionally held stocks had a second daily record gain of 21.55 points to close at 258.39, and the NYSE Composite index had its second consecutive record, rising 11.98 to close at 145.02. The Amex index reversed Tuesday's loss with a 23.81-point gain, and the NASDAQ over-the-counter index followed suit with a 24.07-point rally.
Stock prices in Tokyo and London also showed sharp gains in Wednesday's trading, with the Nikkei average of 225 Tokyo stocks turning in a record gain of 2,037.32 points to close at 23,947.40, up 9.3%. Share prices, heartened by the rebound on Wall Street, were up again today in early trading on the Tokyo Stock Exchange. The Nikkei average rose 729.96 points, or 3%, to close the morning session at 24,677.36.
In Hong Kong, where the stock exchange was shut down for the week after a record drop on Monday, officials said the market might reopen today or Friday.
Trading volume on the New York Stock Exchange finally dipped below its 600-million-plus share pace of Monday and Tuesday, with 449.35 million shares changing hands in the exchange's third-busiest day ever.
Not 'Out of Control'
"You could only consider this market calm or orderly in comparison to yesterday or Monday," said Gene D. Donney, chief executive of Elders Futures, a New York-based securities unit of a big Australian brewery company. "It's merely wild, instead of out of control."
Traders and others said the pace of mutual fund withdrawals by frightened individual investors appeared to have abated Wednesday, reducing selling pressure by the funds. There were conflicting reports about the pace of margin calls, in which investors who have purchased stock with borrowed money are ordered by their lenders to put up more cash or sell their shares. Some brokerages reported that margin calls were running ahead of Tuesday's record pace, while others said they had slowed.
For the third day, the stock market appeared to be virtually free of "program trading," the sophisticated, high-volume orders blamed for helping to set off the market debacle this month.
Program traders--mostly employed by large institutional investors--use computers to dictate the timing of immense buy and sell orders shifting billions of dollars between the stock market and related stock-index futures markets. These orders can overwhelm the trading capacity of the New York Stock Exchange floor, creating appallingly large and abrupt moves in such familiar market indexes as the Dow average and the Standard & Poor's 500 stock index.
Program Trades Restricted