A nervous Wall Street paused over the last two sessions to take a look around and a glance across the Pacific. It didn`t like what it saw.
Over those sessions, the Dow Jones industrial average plummeted more than 94 points, after having spent most of this year drifting upward like a hot-air balloon.
The Dow dropped 32.20 points Wednesday to close at 3181.35. Trading was turbulent all day, down more than 50 points for a time, because of a flood of orders triggered by Tuesday`s drop of nearly 62 points.
Decliners outnumbered gainers Wednesday by more than 3-1 on the New York Stock Exchange. Volume was heavy at 249.21 million shares, up from 204.76 million the previous session.
Analysts said the two-day decline was an overdue correction in a bull market that had charged ahead on expectations of a solid economic recovery.
Market participants fear disappointments in first-quarter earnings, due out in the coming weeks, and have turned skittish about prospects for the economy, observers said. A 7 percent decline in the Japanese stock market over two sessions jarred Wall Street, raising concerns that investors in Tokyo will sell American stocks to cover their losses.
Some analysts said the U.S. setback was no surprise.
”The market was overvalued. I`ve been looking for a 10 percent correction for some time,” said Byron Wien, market strategist for Morgan Stanley & Co. ”Usually it takes some exogenous factor to cause a correction. This time it was a whole series of them.”
The financial crisis at the international real estate giant Olympia & York has renewed anxiety about the banking system; bank stocks were down sharply Wednesday.
”It`s one thing when Donald Trump got in trouble, but it was another when the right ones got in trouble. If these guys can, how many other people will?” said William LeFevre, market strategist for Tucker Anthony Inc.
Shearson Lehman Brothers strategist Elaine Garzarelli, lately one of Wall Street`s most optimistic pundits, meanwhile shifted into a neutral stance.
Stephen Timbers, chief investment officer for Chicago-based Kemper Financial Services, said the softness in the recovery will leave the stock market vulnerable to more stumbles in the months ahead.
”This recovery is not going to be as robust as recoveries have historically been,” Timbers said. ”All you need is a little bit of a slowdown to scare people, and that`s the mode we`re in now.”
LeFevre said most of Tuesday`s losses-the largest one-day decline in the Dow average since November`s mini-crash-came late in the day from computerized trading programs. Wednesday opened with a sharp decline in ”a natural follow- through” of sell orders from investors.
The market staved off a steeper fall with a modest afternoon recovery. The Dow average sank more than 50 points in 45 minutes around midday, triggering program-trading restrictions on the New York exchange.
Some of the computer-driven sell orders were activated after the Dow fell below 3200.
General Motors, which rose Tuesday after a management shakeup, fell 25 cents Wednesday, to $37.62. General Electric dropped $1.25, to $72.87.
International Business Machines bucked the trend. It rose $2.50, to $84.87, in heavy trading after a Merrill Lynch & Co. analyst raised his assessment of the computer company`s stock.
