White House and Brazilian Troubles Cause Stocks to Plummet 250 PointsBy Ianthe Jeanne Dugan
The Washington Post
Blue-chip stocks fell sharply Thursday as buyers avoided securities markets increasingly shaken by growing economic turmoil overseas and President's Clinton's precarious political situation.
The Dow Jones industrial average fell 249.48 points, or 3.2 percent, to 7,613.73, eliminating the last of Tuesday's historic 380-point advance in a second day of steep declines. There were sharp sell-offs in markets around the globe, most ominously in Brazil, considered by analysts and U.S. policymakers to be the key to stabilizing world financial markets.
"The landscape is pock-marked with danger, whether it be political problems in the U.S. or turmoil in emerging markets," said Michael Clark, head of U.S. Trading for Credit Suisse First Boston. "I don't blame anybody for stepping back."
That uncertainty was underscored by unsettling news throughout the trading day. As investors grappled to understand the significance of independent counsel Kenneth Starr's report on President Clinton - in news beamed all day on screen monitors onto the floor of the New York Stock Exchange - Brazil's stock market fell apart.
Even noted bull Abby Joseph Cohen of Goldman, Sachs & Co. appeared jarred by the 14-percent decline in Brazil's leading index, triggered by a negative bond-rating by Standard & Poor's. In an interview, she refrained from reiterating her oft-quoted prediction that the Dow would close above 9,300 by year end. "The stock-price projections run off profit conversions," she said. "We have asked our analysts to assess what impact Brazil will have on corporate profits."
With only 2 percent of U.S. trade pegged to Brazil, "any revision will be very, very small," Cohen said. "But we have told clients that we'll review this and get back to them."
Most analysts agreed that markets tend to bounce back from political hits. "If investors determine what's going on is political even which becomes a market event but not an economic event, then it's likely to be transitory," Cohen said. "Ultimately what drives stocks is: How are we doing as an economy? The answer is good. Profits are growing. Semiconductor inventories have been fixed. Demand for PCs are good."
Yet Wall Street is behaving as if the economy is headed toward a recession. Standard & Poor's 500-stock index is off 20 percent from its high for the year, while The Russell 2000 index of smaller stocks has lost nearly a third of its value; the average small capitalization stock is off more than 50 percent from its high.
"The stock market has priced itself for a recession, which I don't think we're going to have," said Jeffrey Applegate, chief investment strategist at Lehman Brothers. "We'll have a struggling and volatile climb back."