Stock prices dropped sharply Monday, with the Dow Jones industrial average posting its eighth-largest point decline ever.
The bellwether average closed down 76.93 at 1833.55 after being down 110 points earlier. The decline represented a 4 percent loss in value.
On the surface, the drop in stocks was a reflex action to the falling dollar and bonds and a drop in U.S. share prices overseas. But analysts said Monday`s plunge also illustrated just how fearful and uncertain investors still are six weeks after Black Monday-Oct. 19, when the Dow plunged 508 points.
Monday`s stock performance also reflected an impatient Wall Street`s realization that restoring confidence in the market, getting international cooperation on currency back on track and dealing with America`s trade and budget deficits will take much longer than anticipated.
The weeks and months ahead are a minefield of potential missteps. And analysts said the market is vulnerable to all of them.
The budget deficit reduction package announced Nov. 20 was ”no monument to political courage,” said Hugh A. Johnson, chief of investment strategy at First Albany Corp., Albany, N.Y. ”But it was something, and it was received well in Europe. We are making some progress in the right direction,” he added. ”It`s just not fast enough for Wall Street.”
On the New York Stock Exchange, decliners outnumbered advancers by about 8 to 1. Volume totaled 268.9 million shares, the heaviest trading since Oct. 30, when 303 million shares changed hands. The Big Board`s transportation index, a widely watched technical indicator, plummeted 33.29 points to close at 695.14.
The NYSE composite index dropped 5.47 to 129.69, while Standard & Poor`s 500-stock composite index closed down 10.04 at 230.30. On the over-the-counter market, the Nasdaq composite index closed at 305.16, off 11.31. The American Stock Exchange index dropped 8.58 to 242.39.
The yield on the Treasury`s benchmark 30-year bond was also hurt by the falling dollar. The long-bond yield fell but then recovered as the stock market plummeted, closing at 9.11 percent, down from 9.13 percent.
Analysts have predicted for weeks that the stock market would test the low of 1738.74 reached Oct. 19, and according to some, that test is underway. That doesn`t necessarily mean stocks will go that low. The fact that the market bounced off the 1800 level is ”encouraging,” said Monte Gordon, chief of research at Dreyfus Corp.
But Gordon doesn`t predict any sustained rally, because ”there are too many uncertainties.” Among them are how soon and how forcefully Congress will act on the $30 billion 1987 deficit reduction package and how the present Congress can insure that the Congress elected next year will follow through on the second year of that package-a promised cut of $45 billion.
In addition to the falling dollar, Michael Metz, market strategist for Oppenheimer & Co., attributed Monday`s plunge to computerized program trading, inflation fears and the announcement by eight Latin American debtor countries that ”they plan to play hardball on their debt.”
It all added up to what Metz called ”disillusionment” in the market.
Any sustained rally in the face of all of that is going to have to be generated by the internal dynamics of the market or ”be based on some evidence that the dollar can stabilize.”
The market`s 36-point nosedive on the Friday after Thanksgiving-which is traditionally an up day-made people realize it`s going to be a long time
”before we`re out from under the shadow of Black Monday and Black-and-Blue Monday,” said Johnson, referring to Oct. 19 and Oct. 26, when the Dow fell 508 and 156 points, respectively.
Confidence has not been restored, and what happened Monday reflected that reality.
”You cannot buy stocks without the fear that in the next moment you might be pulverized,” Johnson added.
All 30 stocks in the Dow industrial average fell Monday. IBM dropped $3.25 to $111.25, General Motors was down $2.25 at $56.37 and Allegis fell $3.62 to $67.75.
The company announced Monday it is arranging a $2.4 billion bank credit agreement that will allow it and its United Airlines unit to refund some debt. Xerox dropped $2.37 to $52.87, and General Electric was down $1.50 to $42.37.
