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Stock Prices Plunge as Gold Soars in Reaction to Crisis in Russia : Markets: Dow loses 38 points in broad selloff sparked by fears that a power struggle there could reverberate worldwide.

September 22, 1993|TOM PETRUNO | TIMES STAFF WRITER

Stock prices dove and gold surged Tuesday after Russia plunged into political crisis, raising new worries about the global economy's fragile health.

The Dow Jones industrials, off about 20 points at midday before word of the Russian turmoil reached Wall Street, quickly plummeted to a loss of 68 points in heavy trading, but buyers returned to the market late in the day.

The Dow finished with a loss of 38.56 points, or 1%, to 3,537.24--the lowest close since July 22. New York Stock Exchange volume soared to 300 million shares.

Today in Tokyo, Japanese stocks also responded fearfully to the Russian crisis, which was sparked by President Boris N. Yeltsin's decision to dissolve Parliament and call for new elections. The Nikkei index was off 321.84 points, or 1.6%, to 20,144.81 at midday.

Meanwhile, some investors flocked back to gold, which had suffered a steep selloff in recent weeks. In New York, gold futures contracts shot up $9.40 to $362.90 an ounce.

The dollar also surged as traders abandoned European currencies for a safer haven. And in the bond market, long-term bond yields rose for a third straight session.

The likelihood of a showdown between Yeltsin and Parliament spooked investors because it adds another element of doubt about the world economy, said David Jones, economist at Aubrey G. Lanston & Co. in New York.

With Europe and Japan in recession and the United States growing only slowly, any potential shock to the global economy--such as armed conflict in Russia--risks delaying the chances of a meaningful recovery in business activity in 1994.

That could mean disappointing corporate profits at a time when stock prices are anticipating improved results.

In fact, U.S. stocks have been sliding since Labor Day on concerns that third-quarter corporate earnings expectations are too high. The Dow dropped 37.45 points Monday.

Russia's troubles, should they balloon, could also affect inflation expectations. A further drop in Russian oil production, for example, could help shore up world oil prices, which until Monday had been tumbling on oversupply fears.

Crude oil futures rose sharply Tuesday for a second day, with the October contract up 42 cents to a three-week high of $18.12 a barrel.

Still, some analysts said they doubted that the stock market is poised for a free fall from here. "It's encouraging that the markets came back from their worst point Tuesday," Jones noted. Though losers outnumbered winners 5 to 2 on the NYSE on Tuesday, a major selloff would have produced a much more lopsided ratio, traders said.

David Holt, analyst at Wedbush Morgan Securities in Los Angeles, said stocks have been ripe for profit taking after their summer surge. Tuesday's trading, he said, "was a pretty regulated move throughout the day."

Holt said it wouldn't be extraordinary for stocks to give back about half their summer gains. That could mean another 2% drop in such broad indexes as the Standard & Poor's 500, he said. The S&P has lost 1.8% since Labor Day.

While investors are concerned about third-quarter earnings, analysts noted that similar worries also knocked stocks lower in June in anticipation of second-quarter results. But many companies reported surprisingly good results.

Among Tuesday's highlights:

* For a second day, traders pummeled industrial stocks whose earnings are most sensitive to economic swings. Alcoa tumbled 1 7/8 to 66 7/8, Allied-Signal lost 1 7/8 to 72 1/8, Dow Chemical plunged 1 7/8 to 56 7/8, Goodyear sank 1 1/2 to 44 and Caterpillar dropped 1 7/8 to 77 1/8.

* Brokerage stocks fell on worries about the bull market's longevity. Merrill Lynch dropped 2 3/4 to 95 3/8, Salomon tumbled 2 7/8 to 47 5/8 and PaineWebber fell 1 3/8 to 30 7/8.

* On the upside, many technology stocks rallied. They were led by computer networking firm 3Com, which shot up 3 3/8 to 30 5/8 on stronger than expected first-quarter earnings.

Elsewhere in the tech sector, Adobe Systems added 1 5/8 to 18 3/4, Hewlett-Packard rebounded 2 to 67, Sybase gained 1 1/2 to 57 and Cabletron Systems was up 1 1/8 to 104.

* Major drug stocks also rallied ahead of President Clinton's health care reform speech today. Merck rose 1 to 31 1/2, Pfizer soared 2 3/8 to 61 3/8 and Bristol-Myers Squibb gained 1 1/2 to 58 7/8.

* Among new stock issues, Carlsbad-based golf club maker Cobra Golf was well received, despite the market gloom. The company sold 3.25 million shares at 21 each. By the close, the price had rocketed to 31 3/4 on Nasdaq.

Many investors are betting that Cobra will follow the success of Callaway Golf, another Southland golf club maker whose stock has been one of this year's hottest.

Overseas, European markets were closed before Russia's crisis unfolded. In Frankfurt, the DAX index added 13.01 points to 1,925.85. London's FTSE-100 index edged down 2.9 points to 3,001.6.

In Tokyo on Tuesday, the Nikkei average had rebounded 200.62 points to 20,466.65.

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