Wall Street continued a broad correction Monday sparked by a sharp drop in the Japanese market and fears in the U.S. of higher interest rates and overvalued stocks.
The day began badly with the Japanese market in virtual meltdown as the Nikkei stock index lost 556 points, or 3.1 percent, to 17,385.
On the Chicago Mercantile Exchange, the Nikkei 225 futures index hit its lowest level since early March. The Nikkei average for December delivery has plunged 3,935 points, or nearly 23 percent, since September, amid concerns the Japanese economy has lost its spark, company earnings are down and bankruptcies are up. December Nikkei 225 futures settled 455 points lower Monday at 17,355 at the Merc.
“The Japanese economy isn’t responding to lower interest rates, which is a bad sign in and of itself. My best guess is that there are deeper problems, and I’ll bet we’ll see more bankruptcies,” said Alan Bush, an analyst with A.G. Edwards and Sons in Chicago.
That weakness spread into Europe, coupled with concern that German interest rates aren’t falling fast enough, and led to losses in most major markets there.
In the U.S., the Dow Jones industrial average lost 23.76 points to 3670.25, but broader indexes showed larger declines, on a percentage basis. The Dow recovered from a loss of more than 30 points after the American Airlines strike settlement. About 14 common stocks were down for every three that rose.
The Nasdaq index lost 13.43 points to 738.13, a drop of 6.2 percent from its all-time high of 787.42 set Oct. 15.
“I think we’re in the midst of an outright correction,” said Robert Dederick, chief economist at Northern Trust. He said he expects the Dow average to drop about 5 percent, or 150 to 200 points, from its all-time high of 3710.77 set Nov. 16.
“There’s been incredible damage in the secondary and tertiary stocks,” said Marshall Front, chief analyst for Stein Roe & Farnham, who agreed with that rough estimate. “When bond yields go up, the growth stocks that pay no dividend are the first to be hit.
“And it works the other way-when bond yields go down, the growth stocks come right back. The bond market now has pretty much had its correction. But you need the passage of time to cure some of the speculative excesses.”
The bond market had another down day, with prices going down and yields moving in the opposite direction. The benchmark 30-year Treasury-bond yield rose to 6.38 percent from 6.33. It was the highest rate of return since Aug. 12.
Bloomberg Business News conducted a survey Friday showing that fund managers now expect bond yields to fall. The decline in rates will be driven by subdued inflation, more corporate restructurings and slower economic growth induced by federal income taxes, the managers said.
Heartland report
Eagles catch the wind, but they also catch the hunter’s eye. Stocks of high-technology companies have shown some of the greatest gains among Midwestern stocks, hitting highs this fall two and sometimes three times above their yearly lows.
Many now are taking steep dives.
Zebra Technologies of Vernon Hills, which makes the printers for symbolic logic systems, including bar codes, fell $2.62, to $47.75, after being named in Barron’s financial magazine as one of 19 stocks headed for deep trouble if a correction sets in. Zebra has been over $60 this year and as low as $20.25.
Schaumburg-based Motorola fell $2.50, to $93.50, a drop of about 13 percent from its 52-week high, $107.50. SPS Transaction Services of Riverwoods, an acknowledged leader in the field of electronic processing of point-of-sale transactions, fell 50 cents, to $60.75, well off its 52-week high of more than $71.
General Instrument, the Chicago-based maker of cable-TV equipment and star of the electronic superhighway, lost $2.12, to $50.50, down from its 52-week high of $60.25.
