Wall Street prices take big tumble

Press, 10 January 1986, Page 8

Wall Street prices take big tumble

NZPA New York The New York stock market has tumbled to its biggest single-day loss, toppling a record that had stood since October 28, 1929. The Dow Jones industrial average fell more than 39 points to 1527. The previous biggest one-day loss, 38.33 points, was on October 28, 1929. The fall came after the market reached record heights a day earlier. The loss for the Dow Industrials comes off a much larger base than the previous biggest one-day loss. The 1929 loss represented a decline of roughly 13 per cent from its close of 260.64 the night before, while the latest drop was. about 2VI per cent. It was, nonetheless, about twice as large as any other one-day decline in the last year. Only once in 1985 did the average retreat more than 20 points, on August 6, when it fell 21.73 points. Traders said the downturn which occurred on Wednesday (early yesterday, N.Z. time) was accentuated by sell programmes. These are organised selling related to the price of futures markets. Declines led advances, 125, on 182.72 M shares traded. Analysts said the sell-off was prompted partly by a sudden rise in interest rates in the credit markets. Prices of long-term Government bonds, which move in the opposite direction from interest rates, fell about SUS2O for every SUSIOOO in face value.

The upsurge in interest rates was attributed to signs of American economic strength that showed up in a Government report on employment, and to disappointment that the US Federal Reserve Board had not lowered its discount rate.

Once bond and stock prices began to slide, brokers said, it touched off a rush of selling by investors seeking to cash in, and thereby protect, their gains arising from the powerful rally staged by both markets in late 1985. Brokers did not claim to be pleased by the stock market’s nose dive, but they said the general mood was by no means panicky. They argued that the market was due for something like this after its heady rise last year. “It’s painful while it’s happening, but long-term it’s healthy,” said Mr William Lefevre, of Purcell, Graham and Company. “I don’t think anybody’s surprised,” said Mr Jon Groveman, of Ladenburg Thalmann, “This market’s defied the laws of gravity for a long time.” The Dow Jones had risen more than 250 points in three months, and the sell off came after all-time highs were reached on Tuesday for that average, the New York Stock Exchange composite index, the American Stock Exchange index, and the NASDAQ over-the-counter composite index. Remarks by the Wall Street pundit, Mr Henry Kaufman, an economist with Saloman Brothers, were at first blamed by some for the market fall. Mr Kaufman expressed doubt that there would be a cut in interest rates. But Mr Groveman said Mr Kaufman’s remarks were being used only as an excuse. “I don’t think he’s the cause. The market was prone to doing this any way.”