The Dow Jones industrial average, which has been up and down in recent days often enough to qualify as a frequent flyer, began Tuesday with an 85-point drop but finished the day down a mere 3.69 points.
The market first fell on the news that United Airlines` parent, UAL Corp., had put buyout activity on hold. Then fresh rumors about a UAL deal lifted the average back into positive territory, until it fell slightly to close at 2659.22.
The refusal of Japanese and American banks to fund the UAL buyout by a group including the airlines` pilots and management triggered the 190-point Dow tailspin Oct. 13. But analysts also cite the slowing economy for the market volatility.
”This is a `dreams are gone` market,” said Byron Wien, senior market analyst for Morgan Stanley & Co. ”The economy seems to be slumping, no one has any confidence in earnings forecasts and so portfolio managers have a psychology of maximum uncertainty. When they lose self-confidence, it adds to volatility.”
The day`s volatility produced ”a very, very shocking environment that doesn`t provide investors with much confidence,” said Marshall Front, executive vice president of Stein Roe & Farnham Inc., Chicago. ”What a roller coaster!”
He said it is possible, though, that the big drop and recovery means the market has tested its lows hit in the aftermath of the stock market`s Friday the 13th plunge.
”Analysts were saying the market would need to test the low before investors could say they were out of the woods,” he said. ”Let`s hope that`s the case. It may be a few days before we can decide.”
The broader market averages also gyrated Tuesday. Most dropped early, then rallied to regain most of their losses before closing down slightly.
Standard & Poor`s 500-stock index lost 1.13 to 343.70, and the New York Stock Exchange composite index fell 0.85 to 190.05. Losing shares outnumbered gainers 4 to 1 on the Big Board, where volume was 238 million shares, up from 135.9 million Monday.
In the over-the-counter market, the Nasdaq composite index fell 5.52 to 461.70.
Not surprisingly with airline stocks tumbling Tuesday, the Dow Jones transportation index dropped 25.96, to close at 1210.70.
Analysts said at least some of the early sharp selloff came when arbitragers were forced to sell other blue-chip stocks to cover margin calls brought on by the collapsing price of UAL. The company had announced after the close of trading in New York Monday that it would seek to remain independent. UAL`s opening was delayed Tuesday morning while its specialists on the NYSE floor attempted to deal with a huge order imbalance. The stock had closed at $178 a share, but some orders Tuesday came in nearly $30 lower.
UAL traded as low as $145 before recovering to close at $170, down $8.37, on rumors that someone was accumulating shares. Those rumors rallied the stock market.
In the last hour, the Dow was up several points before dropping about 15 points into minus territory, then rallying a for a 3-point loss at the closing bell.
At the Chicago Mercantile Exchange, trading in the Standard & Poor`s 500 stock-index contracts dropped 12 points at 9:33 a.m. Chicago time, the maximum allowed under the circuit breakers implemented in the wake of the 1987 crash. Within moments, however, buy orders pushed the price of the contract back up, and no other circuit breakers went into effect.
The buying in UAL that triggered the afternoon market rally looked like a ”street-sweep where they were buying everything they could get their hands on at any price,” said one arbitrager. Though rumors floated that UAL stock was being accumulated on behalf of Donald Trump, who only recently ended a hostile run at AMR Corp. (parent of American Airlines), some on Wall Street said a more likely buyer Tuesday was Coniston Partners, which tried to oust the UAL board two years ago.
Aside from UAL, other active issues included Security Pacific, which fell 87 cents to $44.50 and led the NYSE active list on volume of 14.81 million shares; Philip Morris, up 62 cents, to $44.50; Chase Manhattan, down 87 cents at $38.87; and AMR, down $1.75 at $68.87.
As measured by Wilshire Associates` index of more than 5,000 active stocks, the nation`s markets fell $18.69 billion, or 0.55 percent, in value.
