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Thursday, Oct. 1, 1998
Fed blamed as Dow tumbles 237 points
Quarter-point rate cut not enough, investors signal
By PATRICIA LAMIELL
Associated PressNEW YORK -- Investors pounded stock prices broadly lower Wednesday after deciding that a quarter-point interest-rate cut by the Federal Reserve would not be enough to rescue fourth-quarter corporate earnings.
The Dow Jones industrial average lost 237.90, or 2.94 percent, to close at 7,842.62. It was the eighth-biggest point drop ever but not close to a record in terms of a percentage decline.
The end-of-quarter selling left Wall Street's best-known indicator 65.63 points below where it began the year and down more than 1,100 points, or 12.4 percent, for the third quarter alone. The Dow also is down 16 percent, or nearly 1,500 points, from its all-time closing high of 9,337.79 on July 17.
The flight from stocks sent money pouring into U.S. government bonds, a traditional haven for funds in times of uncertainty. Yields on 30-year Treasury bonds, which fall as bond prices rise, dropped below 5 percent for the first time since the government began regular sales of such securities in 1977.
Wednesday's market rout followed a mild decline in the Dow on Tuesday after the Federal Reserve lowered its target for the federal funds rate, which member banks charge each other for overnight loans, by one-quarter percentage point to 5.25 percent from 5.5 percent.
The move marked a major shift in the Fed's thinking. As the economy roared ahead in recent years, the Fed was more worried about activity overheating and inflation re-emerging. The rate cut was a sign the Fed is now more worried that the economy and corporate profits are contracting after more than seven years of strong growth.
``It's a strong shot across the bow that deflation is much more serious than we thought,'' said Hugh Johnson, chief investment strategist at First Albany Corp. ``When you see bonds go up in price and when you see stock prices go down, you know there are worries in the economy.
``Every day, we seem to get a new company saying they're going to be affected by the crisis'' in Asia and Russia, Johnson said.
On Tuesday, Northern Telecom Ltd. said its earnings growth would be less than expected, sending telecom stocks down Wednesday and adding to the ranks of companies warning of soft earnings.
Nortel's shares closed down 3 at 32. Lucent Technologies, another telecommunications company, fell 5 to 65 as one of the most active issues on the NYSE.
Broad market indexes also were big losers Wednesday. The Standard & Poor's 500 fell 32.01 to 1,017.01, and the technology-heavy Nasdaq composite index fell 40.21 to 1,693.84.
The NYSE composite index fell 13.81 to 504.47, and the American Stock Exchange composite index declined 7.35 to 621.00.
The Russell 2000 index of smaller companies fell 2.21 to 363.59.
On the New York Stock Exchange, declining issues outnumbered advancers by an 8-to-5 margin. Big-Board composite volume rose to 962.4 million shares from 892.78 million Tuesday. Trading was active, especially considering that many players were absent for the observance of the Jewish holiday of Yom Kippur.
Banking stocks were down sharply. Instead of rising following a round of cuts in the prime rate to 8.25 percent from 8.5 percent, bank stocks continued to be bothered by concerns about banks' investments in hedge funds following the bailout last week of Long-Term Capital Management.
Shares of Chase Manhattan Corp. fell 1 to 43. Chase said Tuesday its hedge-fund exposures totaled $3.2 billion, but only $300 million of that total was unsecured.
The retreat on Wall Street began at the opening bell, after leading international markets slumped.
The Nikkei index in Tokyo tumbled 3 percent to a new 12-year low. The government had been widely expected to help bolster balance sheets as Japanese corporations today closed their books on the first half of the fiscal year. But when the public fund buying failed to materialize, stocks slumped.
In Europe, key indexes closed down 4.2 percent in Paris, 2.3 percent in Frankfurt, Germany, and 0.9 percent in London.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web