The stock market`s recent gains were virtually washed away Tuesday in a tidal wave of selling, resulting in a record one-day decline that left Wall Street jittery.
The Dow Jones industrial average suffered its biggest one-day point drop in history, falling 91.55 to 2548.63. The previous record drop was 86.61 on Sept. 11, 1986. The fall came after a two-week rally that had taken the market nearly 150 points higher.
Declining issues outpaced advances by nearly 4-1 on the New York Stock Exchange. The NYSE composite index fell 4.46 to 178.98.
Big Board volume totaled 175.6 million shares, up from 159.65 million Monday. Nationwide turnover in NYSE-listed issues totaled 208.94 million shares.
Some analysts said the market was responding to comments made Monday night by Robert Prechter, a widely followed stock market technician, to subscribers of his Elliot Wave Theorist newsletter. His bearish predictions added fire to investors` growing concerns about a weak bond market.
Though Prechter was unavailable for comment Tuesday, he reportedly told traders Monday night on his ”hot line” that the market may have hit an interim top and could fall several hundred points in the next few weeks.
The influential Prechter had been considered a leading bull, having predicted that the market would top 3686 before the current cycle ended.
Stock market observers noted that last September`s record plunge also followed close on the heels of a short-term bearish forecast by Prechter.
”This just goes to show that gurus move the market,” said Larry Wachtel, a spokesman for Prudential-Bache Securities Inc. He indicated that Prechter`s signal sent traders scurrying to sell futures contracts, which created a discount between the futures and their underlying baskets of stocks, causing computerized sell programs to kick in.
”The result is larger than life,” Wachtel said. ”In truth, the situation is not as disastrous today as the figures show; nor was the market that strong two weeks ago when it jumped 75 points in one day. We are in an era of outsized swings.”
Many analysts said the market has been overbought in recent weeks and was vulnerable to a hefty correction. Despite the slide, most said they believe Wall Street`s bull is still alive, if limping.
”The market was all primed to be touched off,” said Monte Gordon, director of research for Dreyfus Corp. ”This has been building up for some time, and Prechter`s comments were just the lightning flash that set off the tinderbox.”
Gordon described the decline, as well as recent dramatic increases, as
”lacking in substance.”
”Volume was very light,” he said. ”With this kind of decline, you would expect to see over 300 million shares traded, but volume was well under 200 million.”
Lewis Smith, an analyst with Bear Stearns & Co., said investors are nervous but that he was not overly concerned by Tuesday`s plunge.
”It`s not the beginning of a great big decline,” Smith said. This was the ”final touch” to the market`s correction, or pause in its climb, that began in August, he added.
”What we`re having is a very normal pullback and profit-taking in a bull market that has been showing signs of age,” said Alfred Goldman, a market analyst with A.G. Edwards & Sons Inc. in St. Louis. ”But the market is not in need of a resuscitator.”
The specter of rising interest rates also had a big effect on the market Tuesday. The Dow had been sharply lower all day but reached record-breaking territory in the last half hour.
Analysts said the market began the day with an eye on the falling Treasury bond market. Treasury issues declined partly because of trader worries that the Federal Reserve Board would tighten credit. Stock investors, in turn, feared that the resulting interest rate increases would eat into corporate profits.
There also were concerns that higher yields would make some bonds a more attractive investment than stocks and entice money away from Wall Street, said Michael Metz, a vice president with Oppenheimer & Co.
”A lot of portfolios that had excess cash chose to put it into short-term bonds instead of buying stocks,” Metz said.
The bond market improved, but stocks continued to spiral lower.
”This thing fed on itself,” said Bear Stearns` Smith.
Standard & Poor`s index of 400 industrials fell 11.44 to 372.02, and the S&P 500-stock composite index was down 8.86 to 319.22.
Leading the NYSE most-active list was Tenneco, which rose $1.37 a share to $61.25 amid takeover speculation.
Of the 15 most active stocks, only Tenneco and Gillette, also the subject of continuing takeover rumors, were higher. Gillette gained $1.37 to $43.62.
Among the big losers were IBM, which plunged $5.50 to $151; Digital Equipment, which fell $3.75 to $194; Du Pont, which was down $4.25 to $118.50; Merck, which skidded $7 to $201; Philip Morris, which was off $4 to $113.50;
and CBS, which lost $4.25 to $215.75.
