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Dow Continues to Fall After Wearying Week on Wall Street

By Thomas S. Mulligan
Los Angeles Times

Panic gave way to exhaustion on global markets Friday as investors continued selling stocks but without the intensity seen in Thursday's worldwide plunge.

It wasn't a "Black Friday," but some traders said that had as much to do with fatigue as anything else.

"We've had a long month this week," said Arthur Hogan, chief market analyst for Jefferies & Co. in Boston. "People just wanted to blow the whistle and go home."

On Wall Street, bank, brokerage and technology shares led the market lower, completing the worst week for stocks in this decade.

The Dow Jones industrial average dropped 114 points, or 1.4 percent, Friday, to 8,051 - just 143 points above where it started the year. The Nasdaq composite index, dominated by big-name technology stocks, fell 2.8 percent.

For the week, the Dow industrials dropped 5.7 percent, the worst weekly performance since the "mini-crash" of October 1989. The average is down 14 percent from its July 17 record - its biggest drop since the bull market began in 1990.

Trading volume on the New York Stock Exchange Friday was a heavy 841 million shares, but down from 939 million shares Thursday.

Amid some relative good news - Russian President Boris N. Yeltsin's decision to stay in power and Federal Reserve Chairman Alan Greenspan's decision to join Treasury Secretary Robert Rubin and Japanese Finance Minister Kiichi Miyazawa in a meeting next Friday - many investors still opted to take money out of the market ahead of the weekend.

"We've gone from an environment where people are accustomed to a 30 percent return to one where they just want their money back," said Michael Clark, head of equity trading at Credit Suisse First Boston.

Thursday's debacle - which included a 357-point plunge in the Dow and worse damage in European and Latin American markets - was set off by the collapse of the Russian ruble and rumors that Yeltsin might be out, plus Japan's continuing inability to find a way out of its financial crisis.

Indeed, as critical as nuclear-armed Russia's stability is to the world scene, Japan poses a more immediate and serious threat to the global economy, said Carl B. Weinberg, chief economist for High Frequency Economics in Valhalla, N.Y.

As the Nikkei withers, it further weakens Japanese banks, which invest in stocks directly and accept them as collateral on loans.

The collapse of one or more major banks could spark panic and send investors running for cash, Weinberg said. And where would they get it? Since 1984, the Japanese have invested $2 trillion in markets worldwide - and that's counting only stocks and bonds, not real estate.

A massive cash call from Japan would batter markets globally, Weinberg said.

There were other worries for investors to bring home this weekend. Commodity prices continued to sag Friday, with the Commodity Research Bureau's index hitting a 21-year low.

The collapse in prices for oil, grains, metals, cotton, pork, lumber and other basic goods is a strong signal of a global recession, said Edward Yardeni, chief economist for Deutsche Bank in New York.

Gold fell to a 19-year low of $273.40 an ounce on fears that Russia would sell from its massive reserves in an effort to stabilize the ruble.

Analysts said the threat of deflation could push governments around the world to relax fiscal and monetary policy quickly to spur economic growth.

Yardeni said the Federal Reserve, which has been focusing on the strength of the U.S. economy, ought to cut interest rates in reaction to the weakness elsewhere.

U.S. consumer spending - the main engine of the economy - dropped in July for the first time in more than two years.

The downturn was blamed largely on falling auto sales due to the General Motors strike, but there are worries that a worse drop in the stock market could hurt consumer confidence and lead to a further spending pullback.