The stock market plunged more than 45 points Tuesday in its first major storm of the summer.
It was the seventh-largest single-session loss in market history and the biggest since the 52.97-point drop May 15. The largest decline was 86.61 points Sept. 11.
The Dow Jones industrial average closed down 45.91 at 2654.66, but during the day had been off as much as 65 points.
”We`re getting beat up a little today,” said Ralph J. Acampora, a technical analyst for Kidder, Peabody & Co.
The selloff seemingly was sparked by a drop in the value of the dollar, which was caused by slipping oil prices. Some traders, however, said the market simply was ripe for a selloff, and the 2700 Dow mark reached Monday represented a psychological selling point.
But the stock market`s decline, which also pulled down the bond market, did not appear to be accompanied by panic or worry.
”It`s actually very healthy after the tremendous run we`ve had,” said Ronald Doran, head of institutional trading at First Albany Corp., Albany, N.Y.
”Some of the people I`ve been talking with have been hoping for something like this to give them the opportunity to regroup. They`d like to see it continue for a couple of days before putting some money back into the market.”
”I wouldn`t be too alarmed by it (the decline),” said Rodd Anderson, a vice president and trader for Shearson Lehman Brothers Inc. ”The market will probably snap back very quickly.”
Declining issues swamped gainers by about 7 to 2. Trading was heavy, with volume in New York Stock Exchange-listed issues at 233.1 million shares.
The fatigue set in after a Dow climb of nearly 500 points since mid-May and 800 points so far this year–an increase of slightly more than 42 percent since Jan. 1.
”The market is overtired and overworked,” agreed Alan Ackerman of Gruntal and Co.
”There`s still money on the sidelines, but investors are going to be less eager to put it to work for a while until they see where this (decline)
ends.”
”As investors know, the stock market came a long way in a short time,”
said Butcher and Singer analyst Thom Brown. He viewed the sharp decline as
”normal profit-taking in a continuing bull market.”
The dollar sank below key resistance points to 145.75 Japanese yen from 149.23 on Monday and to 1.8410 marks from 1.8705. But it recovered from those lows, buoyed in part by rumors of Federal Reserve intervention and reports that a Liberian-flagged tanker was fired on by an Iranian gunboat in the Persian Gulf, a situation that could renew demand for the dollar as a ”safe harbor” investment.
Before that attack, traders had attributed the dollar`s slide to a relatively peaceful situation in the gulf and a delayed reaction to Friday`s announcement of a disappointing $15.7 billion U.S. trade deficit for June.
The dollar`s weakness made U.S. stocks less attractive to foreign investors, who have contributed much of the cash that has propelled the market to new highs.
Currency traders ”got their brains blown out” by the trade-gap figure, and Monday`s drop in oil prices only increased bearish sentiment for the dollar, said a New York-based trader.
”That meant the oil market wasn`t concerned with inflation or the Persian Gulf,” she added. ”The Middle East was the whole reason the market used to buy dollars.”
Traders said the Federal Reserve intervened in the New York foreign exchange market, with the central bank selling yen and marks for dollars at levels of 145.55 yen and 1.8390 marks. One dealer said the dollar firmed shortly after the reported intervention, rising to 146.10 yen and 1.8430 marks.
Another New York bank trader said the intervention was relatively small, adding, ”I would be surprised if it were more than $100 million.”
A spokesman for the Fed wouldn`t comment on the reports, citing its longstanding policy of silence in regard to foreign exchange activities.
A trader in Frankfurt said: ”We`re at a critical level right now. If the dollar drops much more, it will probably fall another 50 points (against the West German mark).”
Oil prices struggled to break through the $20-a-barrel barrier Tuesday, retreated, then bounced back in response to the reported tanker attack. Futures contracts for September delivery of West Texas Intermediate, the benchmark U.S. crude, closed on the New York Mercantile Exchange at $19.90 for each 42-gallon barrel, up 7 cents from Monday.
Crude futures had plummeted 74 cents a barrel Monday to fall below $20 for the first time in nearly two months. Analysts attributed the fall to concerns that inventories may be exceeding demand and to worries that the 13- nation Organization of Petroleum Exporting Countries was exceeding its daily production quota by more than had been believed.
”We`ve had two or three weeks of steadily eroding prices, and I think it is tied to the fact the market is saturated,” said Ed Krapels, an analyst at Energy Security Analysis Inc. ”The only thing to turn it around would be a major event in the Middle East.”
U.S. Treasury bonds fell sharply in response to the dollar`s slide. The bellwether 30-year bond plummeted 1 3/16 points, or about $12 for every $1,000 in face value. Its yield, which moves in an opposite direction from price, jumped to 8.90 percent from 8.79 percent late Monday.
